Accounting for Pensions and Postretirement Benefits
20–41
Solution 20-115
Ex. 20-116—Pension plan calculations and journal entry.
On January 1, 2021, McGee Co. had the following balances:
Projected benefit obligation $7,800,000
Fair value of plan assets 7,800,000
Other data related to the pension plan for 2021:
Service cost 315,000
Contributions to the plan 459,000
Benefits paid 450,000
Actual return on plan assets 468,000
Settlement rate 9%
Expected rate of return 6%
Instructions
(a) Determine the projected benefit obligation at December 31, 2021. There are no net gains or
losses.
(b) Determine the fair value of plan assets at December 31, 2021.
(c) Calculate pension expense for 2021.
(d) Prepare the journal entry to record pension expense and the contributions for 2021.
Test Bank for Intermediate Accounting, Seventeenth Edition
20–42
Solution 20-116 (cont.)
*Ex. 20-117—Computing and recording postretirement expense.
The following information is related to the Stone Co. postretirement benefits plan for 2021:
Service cost $183,000
Discount rate 10%
EPBO, January 1, 2021 820,000
APBO, January 1, 2021 710,000
Actual return on plan assets in 2021 22,400
Expected return on plan assets in 2021 29,000
Contributions (funding) 244,000
Instructions
(a) Compute the amount of postretirement expense for 2021. (Show computations.)
(b) Prepare the journal entry to record postretirement expense and Stone’s contributions for
2021.
*Ex. 20-118—Computing postretirement expense and APBO.
The following information is related to the postretirement benefits plan of Heerey, Inc. for 2021:
Service cost $ 320,000
Discount rate 8%
APBO, January 1, 2021 2,500,000
EPBO, January 1, 2021 2, 700,000
Actual return on plan assets in 2021 104,000
Expected return on plan assets in 2021 95,600
Amortization of PSC, due to benefit increase 107,200
Contributions (funding) 400,000
Benefit payments 208,000
Accounting for Pensions and Postretirement Benefits
20–43
Instructions
(a) Compute the amount of postretirement expense for 2021. (Show computations.)
(b) Compute the amount of the APBO at December 31, 2021.
PROBLEMS
Pr. 20-119—Measuring, recording, and reporting pension expense and liability.
Tucker, Inc. on January 1, 2021 initiated a noncontributory, defined–benefit pension plan that
grants benefits to its 100 employees for services rendered in years prior to the adoption of the
pension plan. The total expected service-years of the 100 employees who are expected to
receive benefits under the plan is 1,200. An actuarial consulting firm has indicated that the
present value of the projected benefit obligation on January 1, 2021 was $5,880,000. On
December 31, 2021 the following information was provided concerning the pension plan’s
operations for its first year.
Employer’s contribution at end of year $1,600,000
Service cost 600,000
Projected benefit obligation 6,561,600
Plan assets (at fair value) 1,600,000
Expected return on plan assets 9%
Settlement rate 8%
Instructions
(a) Compute the pension expense recognized in 2021. Assume the prior service cost is
amortized over the average remaining service life of the employees.
(b) Prepare the journal entries to reflect accounting for the company’s pension plan for the year
ended December 31, 2021.
(c) Indicate the amounts that are reported on the income statement and the balance sheet for
2021.
Test Bank for Intermediate Accounting, Seventeenth Edition
20–44
Solution 20-119
Pr. 20-120—Measuring and recording pension expense.
Presented below is information related to the pension plan of Zimmer Inc. for the year 2021.
1. The service cost related to pension expense is $260,000 using the projected benefits
approach.
2. The projected benefit obligation and the accumulated benefit obligation at the beginning of the
year are $350,000 and $280,000, respectively. The expected return on plan assets is 9% and
the settlement rate is 10%.
3. The accumulated OCI – prior service cost at the beginning of the year is $140,000. The
company has a workforce of 200 employees, all who are expected to receive benefits under
the plan. The total number of service-years is 1,000 and the service-years attributable to 2021
is 200. The company has decided to use the years–of-service method of amortization for
these costs.
Accounting for Pensions and Postretirement Benefits
20–45
Pr. 20-120 (cont.)
4. At the beginning of the period, the fair value of pension plan assets was $280,000. The
company had an Accumulated OCI (loss) at the beginning of the period of $90,000. Any
amortization of unrecognized net loss is recognized on a straight-line basis over the average
remaining service-life of the employees.
5. The contribution made to the pension fund in 2021 was $229,000.
Instructions
(a) Determine the pension expense to be reported on the income statement for 2021. (Round
all computations to nearest dollar.)
(b) Prepare the journal entry(ies) to record pension expense for 2021.
Test Bank for Intermediate Accounting, Seventeenth Edition
20–46
Solution 20-120 (cont.)
Pr. 20-121—Preparing a pension work sheet.
The accountant for Marlin Corporation has developed the following information for the company’s
defined-benefit pension plan for 2021:
Service cost $1,000,000
Actual return on plan assets 500,000
Annual contribution to the plan 1,840,000
Amortization of prior service cost 250,000
Benefits paid to retirees 120,000
Settlement rate 10%
Expected rate of return on plan assets 8%
The accumulated benefit obligation at December 31, 2021, amounted to $6,500,000.
Instructions
(a) Using the above information for Marlin Corporation, complete the pension work sheet for
2021. Indicate (credit) entries by parentheses. Calculated amounts should be supported.
(b) Prepare the journal entry to reflect the accounting for the company’s pension plan for the
year ending December 31, 2021.
20–44 Test Bank for Intermediate Accounting, Sixteenth Edition
Test Bank for Intermediate Accounting, Sixteenth Edition
20–46
Solution 20-121 (cont.)
Pr. 20-122—Amortization of prior service cost using years–of-service method.
On January 1, 2020, Solano Incorporated amended its pension plan which caused an increase of
$6,000,000 in its projected benefit obligation. The company has 400 employees who are
expected to receive benefits under the company’s defined-benefit pension plan. The personnel
department provided the following information regarding expected employee retirements:
Expected Retirements
Number of Employees On December 31
40 2020
120 2021
60 2022
160 2023
20 2024
400
The company plans to use the years–of-service method in calculating the amortization of prior
service cost as a component of pension expense.
Instructions
Prepare a schedule which shows the amount of annual prior service cost amortization that the
company will recognize as a component of pension expense from 2020 through 2024.
Accounting for Pensions and Postretirement Benefits
20–47
Solution 20-122 (cont.)
Pr. 20-123 – Pension Worksheet – Missing Amounts
The accounting staff of Elias Inc. has prepared the following pension worksheet. Unfortunately,
several entries in the worksheet are not readable. The company has asked your assistance in
completing the worksheet and completing the accounting tasks related to the pension plan for
2021.
General Journal Entries
Memo Record
Items
Annual
Pension
Expense
Cash
OCI —–
Prior
Service
Cost
OCI —
Gain/Loss
Pension
Asset/Liability
Projected
Benefit
Obligation
Plan
Assets
Balance, Jan.
1, 2021
2,400Cr.
8,400
6,000
Service cost
(1)
1,200
Interest cost
(2)
672
Actual return
(3)
860
Unexpected
gain
320
(4)
Amortization
of PSC
(5)
140
Contributions
2,400
2,400
Benefits
600
600
Liability
increase
(6)
1,090
Journal entry
(7)
(8)
(9)
(10)
(11)
Accumulated OCI, Dec. 31, 2020
1,400
0
Balance, Dec. 31, 2021
1,260
770
2,102
10,762
8,660