Test Bank for Intermediate Accounting, Sixteenth Edition
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Pr. 20-123 (cont.)
Instructions
(a) Determine the missing amounts in the 2021 pension worksheet, indicating whether the
amounts are debits or credits.
(b) Prepare the journal entry to record 2021 pension expense for Elias Inc.
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Pr. 20-124 – Pension Worksheet
Howard Corp. sponsors a defined-benefit pension plan for its employees. On January 1, 2021,
the following balances related to this plan.
Plan assets (fair value) $2,200,000
Projected benefit obligation 2,400,000
Pension asset/liability 200,000 Cr.
Prior service cost 300,000
OCI – Loss 260,000
As a result of the operation of the plan during 2021, the actuary provided the following additional
data at December 31, 2021.
Service cost for 2021 $280,000
Actual return on plan assets in 2021 180,000
Amortization of prior service cost 60,000
Contributions in 2021 460,000
Benefits paid retirees in 2021 320,000
Settlement rate 7%
Expected return rate 8%
Average remaining service life of active employees 10 years
Instructions
(a) Compute pension expense for Howard Corp. for the year 2021 by preparing a pension
worksheet.
(b) Prepare the journal entry for pension expense.
Accounting for Pensions and Postretirement Benefits
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Solution 20–124 (Continued)
Test Bank for Intermediate Accounting, Sixteenth Edition
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IFRS QUESTIONS
True/False
1. The accounting for defined–benefit pension plans is the same under GAAP and IFRS.
2. Prior service cost is recognized on the balance sheet under both GAAP and IFRS.
3. Prior service cost is amortized into income over the expected service lives of employees
under both GAAP and IFRS.
4. Under IFRS companies may recognize actuarial gains and losses in income immediately.
5. Under GAAP companies may either recognize actuarial gains and losses in income
immediately or amortize them over the expected service lives of employees.
Answers to True/False:
Multiple Choice
6. The International Accounting Standards Board has proposed changes to IFRS pension
accounting including all of the following except
a. elimination of smoothing via the corridor approach.
b. different presentation of pension costs in the income statement.
c. requiring recognition of actuarial gains and losses over the expected service lives of
employees.
d. a new category of pensions for accounting purpose – “contribution–based promises.”
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7. Midland Company follows GAAP for its external financial reporting whereas Bailey
Company follows IFRS for its external financial reporting. The amount contributed by
Midland for its defined contribution plan for 2021 amounted to $55,000 and the amount
contributed by Bailey for its defined contribution plan for 2021 amounted to $76,000. The
remaining service lives of employees at both firms is estimated to be 10 years. What is the
amount of expense related to pension costs recognized by each company in its income
statement for the year ended December 31, 2021?
Midland Bailey
a. $ 5,500 $76,000
b. $55,000 $76,000
c. $55,000 $ 7,600
d. $ 5,500 $ 7,600
Test Bank for Intermediate Accounting, Sixteenth Edition
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8. Midland Company follows GAAP for its external financial reporting whereas Bailey
Company follows IFRS for its external financial reporting. The remaining service lives of
employees at both firms is estimated to be 10 years. The following information is available
for each company at December 31, 2021 related to their respective defined-benefit
pension plans.
Midland Bailey
Net of pension assets and liabilities $110,000 $140,000
Prior service cost $230,000 $175,000
What is the amount of prior service cost recognized by each company in its income
statement for the year ended December 31, 2021?
Midland Bailey
a. $230,000 $175,000
b. $ 23,000 $175,000
c. $ 23,000 $ 17,500
d. $230,000 $ 17,500
9. Midland Company follows GAAP for its external financial reporting whereas Bailey
Company follows IFRS for its external financial reporting. The remaining service lives of
employees at both firms is estimated to be 10 years. The following information is available
for each company at December 31, 2021 related to their respective defined-benefit
pension plans.
Midland Bailey
Net of pension assets and liabilities $110,000 $140,000
Prior service cost $220,000 $175,000
What is the amount of Pension Asset/Liability recognized by each company in its balance
sheet at December 31, 2021?
Midland Bailey
a. $110,000 $140,000
b. $ 11,000 $140,000
c. $110,000 $ 14,000
d. $ 11,000 $ 14,000
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10. Midland Company follows GAAP for its external financial reporting whereas Bailey
Company follows IFRS for its external financial reporting. The remaining service lives of
employees at both firms is estimated to be 10 years. The following information is available
for each company at December 31, 2021 related to their respective defined-benefit
pension plans.
Midland Bailey
Net of pension assets and liabilities $110,000 $140,000
Prior service cost (after amortization, if any) $230,000 $175,000
What is the amount of Prior Service Cost recognized by each company on its balance
sheet at December 31, 2021?
Midland Bailey
a. $230,000 $175,000
b. $-0- $175,000
c. $-0- $-0-
d. $230,000 $-0-
Answers to Multiple Choice:
Test Bank for Intermediate Accounting, Sixteenth Edition
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