Headland Company sponsors a defined benefit pension plan for its
employees. The following data relate to the operation of the plan
for the years 2020 and 2021.
|
2020 |
2021 |
|||||
| Projected benefit obligation, January 1 | $604,400 | |||||
| Plan assets (fair value and market-related value), January 1 | 413,300 | |||||
| Pension asset/liability, January 1 | 191,100 | Cr. | ||||
| Prior service cost, January 1 | 159,200 | |||||
| Service cost | 40,000 | $58,500 | ||||
| Settlement rate | 10 | % | 10 | % | ||
| Expected rate of return | 10 | % | 10 | % | ||
| Actual return on plan assets | 36,000 | 61,600 | ||||
| Amortization of prior service cost | 69,300 | 50,000 | ||||
| Annual contributions | 96,700 | 81,400 | ||||
| Benefits paid retirees | 31,600 | 54,040 | ||||
| Increase in projected benefit obligation due to changes in actuarial assumptions | 86,300 | 0 | ||||
| Accumulated benefit obligation at December 31 | 722,000 | 792,600 | ||||
| Average service life of all employees | 20 years | |||||
| Vested benefit obligation at December 31 |
465,900 |
|||||
1.Prepare a pension worksheet presenting both years 2020 and 2021.
2.
|
3. For 2021, indicate the pension amounts reported in the financial statements.
|
Headland Company Pension worksheet 2020-2021 |
||||||||||||||
|
General Entries |
Memo Record |
|||||||||||||
|
Items |
Annual Pension expense |
Cash |
OCI- Prior service cost |
OCI- Gain/Loss |
Pension Asset/Liabilities |
Project benefit obligation |
Plan assets |
|||||||
|
Balance January 1 2020 |
191,100 |
Cr |
604,400 |
Cr |
413,300 |
Dr |
||||||||
|
Service cost |
40,000 |
Dr |
40,000 |
Cr |
||||||||||
|
Interest cost |
60,440 |
Dr |
60,440 |
Cr |
||||||||||
|
Actual Return |
36,000 |
Cr |
36,000 |
Dr |
||||||||||
|
Unexpected loss |
5,330 |
Cr |
5,330 |
Dr |
||||||||||
|
Amortization of PSC |
69,300 |
Dr |
69,300 |
Cr |
||||||||||
|
Contributions |
96,700 |
Cr |
96,700 |
Dr |
||||||||||
|
Benefits |
31,600 |
Dr |
31,600 |
Cr |
||||||||||
|
Increase in PBO |
86,300 |
Dr |
86,300 |
Cr |
||||||||||
|
Journal Entry for 2020 |
128,410 |
Dr |
96,700 |
Cr |
69,300 |
Cr |
91,630 |
Dr |
54,040 |
Cr |
||||
|
Accumulated OCI Dec 31, 2019 |
159,200 |
Dr |
||||||||||||
|
Balance Dec 31, 2020 |
89,900 |
Dr |
91,630 |
Dr |
245,140 |
Cr |
759,540 |
Cr |
514,400 |
Dr |
||||
|
Service cost |
58,500 |
Dr |
58,500 |
Cr |
||||||||||
|
Interest cost |
75,954 |
Dr |
75,954 |
Cr |
||||||||||
|
Actual return |
61,600 |
Cr |
61,600 |
Dr |
||||||||||
|
Unexpected gain |
10,160 |
Dr |
10,160 |
Cr |
||||||||||
|
Amortization of PSC |
50,000 |
Dr |
50000 |
Cr |
||||||||||
|
Amortization of loss |
784 |
Dr |
784 |
Cr |
||||||||||
|
Contributions |
81,400 |
Cr |
81,400 |
Dr |
||||||||||
|
Benefits |
54,040 |
Dr |
54,040 |
Cr |
||||||||||
|
Journal entry for 2021 |
133,798 |
Dr |
81,400 |
Cr |
50,000 |
Cr |
10,944 |
Cr |
8,546 |
Dr |
||||
|
Accumulated OCI Dec 31, 2020 |
89,900 |
Dr |
91,630 |
Dr |
||||||||||
|
Balance Dec 31, 2021 |
39,900 |
Dr |
80,686 |
Dr |
236,594 |
Cr |
839,954 |
Cr |
603,360 |
Dr |
||||
WORKING NOTES
1) Interest cost = (projected benefit obligation at the beginning of year * interest rate)
2017 = (604400 * 10%) = 60440
2018 = (759,540 * 10%) = 75,954
2) Calculation of unexpected loss or gain
Expected return = plan assets at the beginning of the year * Expected return
|
2017 = (413,300 * 10%) |
41330 |
|
Actual return |
(36,000) |
|
Unexpected loss |
5330 |
|
2018 = (514,400 * 10%) |
51,440 |
|
Actual return |
(61,600) |
|
Unexpected loss /gain |
(10,160) |
3) Amortization of loss
2021 corridor test
|
Accumulated net gain/loss at the beginning of the year |
91,630 |
|
10% of larger of PBO or plan asset i.e. higher of (759,540 * 10%) or (514,400 * 10%) |
(75,954) |
|
Amortizable Amount |
15,676 |
|
2018 amortization (15,676 / 20years) |
784 |
JOURNAL ENTRIES
|
Date |
Particulars |
Debit |
Credit |
|
Dec31,2020 |
Pension expense |
128410 |
|
|
Other comprehensive income (G/L) |
91630 |
||
|
To cash |
96700 |
||
|
To other comprehensive income PSC |
69300 |
||
|
To pension assets/ liabilities |
54040 |
||
|
(to record pension related transactions) |
|||
|
Dec31,2021 |
Pension expense |
133798 |
|
|
To pension assets/ liabilities |
8546 |
||
|
To cash |
81400 |
||
|
To other comprehensive income PSC |
50000 |
||
|
Other comprehensive income (G/L) |
10944 |
||
|
(to record pension related transactions) |
|
Headland company |
|
|
Income statement (partial) |
|
|
For the year ended December 31, 2021 |
|
|
Expenses |
|
|
Pension expense |
133798 |
|
Headland company |
|
|
Comprehensive Income statement (partial) |
|
|
For the year ended December 31, 2021 |
|
|
Net income |
|
|
Other comprehensive income (loss) |
|
|
Asset gain (loss) |
10160 |
|
Amortization of loss |
784 |
|
Prior service cost amortization |
50000 |
|
Comprehensive income |
60,944 |
|
Headland company |
|
|
Partial balance sheet |
|
|
December 31, 2021 |
|
|
Liabilities |
|
|
Pension liability |
236,594 |
|
Stock holder’s equity |
|
|
Accumulated other comprehensive loss (PSC) |
39,900 |
|
Accumulated other comprehensive loss (G/L) |
80,686 |
Headland Company sponsors a defined benefit pension plan for its employees. The following data relate to...