Question

Advanced Accounting II Chapter 20 Pensions and Postretirement Benefits Problem 1. Measuring, recording, and reporting pension expense and liability. Tucker, Inc. on January 1, 2017 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 prior service cost on January 1, 2017 was $5,040,000. On December 31, 2017 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 6,000,000 Plan assets (at fair value) 1,600,000 Expected return on plan assets Settlement rate 8% Instructions (a) Compute the pension expense recognized in 2017. 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, 2017. (C) Indicate the amounts that are reported on the income statement and the balance sheet for 2017 9%

Answer 1

Components of Pension Expense Service Cost Interest on Projected Benefit Obligation Expected Return on Plan Assets Amortization of Prior Service Cost Pension Expense $600,000 $480,000 ($6,000,000 x 8%] $144,000 ($1600000 x 9%] $0 [None is amortized] $936,000 b) ACCOUNT TITLES AND EXPLANATION Pension Expense Pension Asset/Liability Cash Other Comprehensive Income (PSC) DEBIT $936,000 $664,000 CREDIT [As calculated in Part-(a)] [Balancing figure] $1,600,000 (Given] | $0 [None of Prior Service Cost is amortized] Tcuker Inc. Income Statement (Partial) For the year ended December 31,2017 Expenses: Pension Expense $936,000 (As calculated in Part-(a)]

Tcuker Inc. Comprehensive Income Statement For the year ended December 31,2017 Net Income / (Loss) $XXXX Other Comprehensive Income: Amortization of PSC Comprehensive Income $XXXX $0

Tcuker Inc. Balance Sheet (Partial) For the year ended December 31,2017 Long-term Liabilities: Pension Liability Stockholders' Equity: Accumulated Other Comprehensive Income (PSC) $3,736,000 (Ref: Workings] $5,040,000 [$5040000 - $0] Workings: $6,000,000 $600,000 $480,000 ($6,000,000 x 8%] $7,080,000 Projected benefit obligation, before adjustment Add: Service Cost Add: Interest on Projected Benefit Obligation Projected benefit obligation Fair value of pension plan assets Add: Expected Return on Plan Assets Add: Cash Contribution Plan assets Pension liability $1,600,000 $144,000 $1,600,000 [$1600000 x 9%] $3,344,000 $3,736,000 [$7080000 - $3344000]