Question

At the end of 2019, the balances in the accounts related to the defined benefit pension plan of the Warren Company were as follows:                                      
                                      
       Projected benefit obligation                           1,320,000  
       Unrecognized prior service cost (remainder to be amortized over 12 years)                             110,000  
       Unrecognized net loss                            192,000  
       Plan assets (at fair value)                            1,047,500  
                                      
On 1/1/20, Warren amended the plan to provide an increased amount of pension benefits; the prior service cost resulting from this                                       
amendment was $70,000. At 1/1/20, the average remaining service life of employees expected to receive benefits was 12 years.                                      
                                      
The following information relates to the year 2020:                                      
                                      
   Service Cost                   175,500              
   Settlement rate                    7%              
   Expected rate of return on plan assets                   6%              
   Plan contribution (at year-end)                   158,000              
   Benefit payments to retirees (at year-end)                   135,000              
                                      
In 2020, Warren’s actual return on plan assets was $75,000. Warren follows a policy of recognizing gains/losses on a delayed basis                                      
using the "corridor approach". At the end of 2020, there was one change in the estimates and assumptions relating to computation of the                                       
projected benefit obligation, resulting in a decrease in the PBO of $35,000.                                       
                                      
                                      
Required:                                      
a.   Prepare Warren’s pension worksheet, and prepare the journal entry that Warren would make to record the expense calculated.                                    
b.   Prepare the pension note required for the 12/31/20 financial statements.

Answer 1

Pension accounting for the year ended 2020

Year 2020 1 Pension Expense $ 2,19,216.67 2 Journal entry 2020 Account title & Explaination Debit Credit Annual pension expense 2,19,217 OCI-Prior Service Cost 60,833 OCI-Gain/Loss) 17,850 Cash 1,58,000 Net Pension Asset/liability 1,39,900 (To record pension expense and remeasurement loss recorded) 1,58,000 3 Plan Asset Cash (To record the contribution made) 1,58,000 1,35,000 Net Pension Asset/liability Cash (To record benefit paid) 1,35,000 4 Net Pension Asset/(liability) $ (4,12,400) 5 Projected benefit obligation Plan Asset Plan Surplus/(Deficit) $ (15,57,900) $ 11,45,500 $ (4,12,400)

Items Plan Asset 10,47,500 Balance, Jan 1,2020 , Past Service Cost created Service Cost Interest Cost Actual return Unexpected gain/ loss Amortisation of PSC Amortisation of OCI-Gain/loss Liability (increases)/decreases Contributions Benefits Pension Worksheet 2020-IFRS Annual OCI-Prior OCI- Pension Pension Cash Projected benefit Expense Service Cost Gain/(Loss) Asset/liability obligation $ $ 1,10,000$ (1,92,000) $ (2,72,500) $ (13,20,000) $ $ $ 70,000 S $ $ (70,000) $ 1,75,500 $ $ $ $ (1,75,500) $ 92,400$ $ $ $ (92,400) $ (75,000) $ $ $ $ $ 12,150 $ $ 12,150 $ $ $ 9,167 $ $ (9,167) $ $ $ 5,000 $ $ $ 5,000 $ $ S $ (35,000) $ $ (35,000) $ (1,58,000) $ $ $ $ $ $ $ $ 1,35,000 $ $ $ $ $ $ 2,19,217 $ (1,58,000) $ 60,833$ (17,850) $ (1,39,900) $ (2,37,900) $ $ $ 1,10,000 $ (1,92,000) $ $ $ $ $ 1,70,833 $ (2,09,850) $ (4,12,400) $ (15,57,900) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Actual return - Expected return Gain/(loss) 75,000 $ 75,000.00 $ 62,850.00 $ 12,150.00 7.16% 6.00% 10% of higher of PBO or Plan asset 1,58,000 OCI-Gain/(Loss) (1,35,000) Amount to be amortised Avg remaining service life 98,000 Amt to be included in service cost $ (1,32,000.00) $ 1,92,000.00 $ 60,000.00 12 year $ 5,000 Journal entry for 2020 Accumulated OCI dec 31, 2019 Balance, December 31, 2020 11,45,500

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