Question

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2017, 2018, and 2019. For Year Ended December 31, 2017 2018 2019 Plan assets (fair value) $50,000 $85,000 $180,000 Accumulated benefit obligation 45,000 165,000 292,000 Projected benefit obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) 0 78,400 81,033 Employer’s funding contribution (made at end of year) 50,000 60,000 105,000 There were no balances as of January 1, 2017, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company’s pension obligation was 13% in 2017, 11% in 2018, and 8% in 2019. The service cost component of net periodic pension expense amounted to the following: 2017, $60,000; 2018, $85,000; and 2019, $119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2017, $30,000 of benefits were paid in 2018, and $18,500 of benefits were paid in 2019 (all benefits paid at end of year).

Calculate the amount of net periodic pension expense that the company would recognize in 2017, 2018, and 2019

Prepare the journal entries to record net periodic pension expense, employer’s funding contribution, and related pension amounts for the years 2017, 2018, and 2019

Answer 1

А B 60000 - 1 a) 2 pension expense for 2017 comprised the following 3 service cost 4 interest on projected benefit obligation 5 Less : Expected return on plan assets 6 Amortization of net gain or loss 7 amortization of prior service cost 8 pension expense 60000 9 85000 6600 -5000 O 86600 10 11 b) 12 pension expense for 2018 comprised the following 13 service cost 14 interest on projected benefit obligation 15 Less : Expected return on plan assets 16 Amortization of net gain or loss 17 amortization of prior service cost 18 pension expense 19 20 c) 21 pension expense for 2019 comprised the following 22 service cost 23 interest on projected benefit obligation 24 Expected return on plan assets 25 Amortization of net gain or loss 26 amortization of prior service cost 27 pension expense 28 180000 16000 -8500 0 187500

1 a) 2 pension expense for 2017 comprised the following 3 service cost 60000 4 interest on projected benefit obligation 5 Less : Expected return on plan assets 6 Amortization of net gain or loss i amortization of prior service cost 8 pension expense 60000 9 10 10 0 11 b) 12 pension expense for 2018 comprised the following 13 service cost 85000 14 interest on projected benefit obligation =60000*11% 15 Less : Expected return on plan assets =-50000*10% 16 Amortization of net gain or loss 17 amortization of prior service cost 18 pension expense I=B13+B14+B15 19 20 c) 21 pension expense for 2019 comprised the following 22 service cost 180000 23 interest on projected benefit obligation =200000*8% 24 Expected return on plan assets =-85000*10% 25 Amortization of net gain or loss 26 amortization of prior service cost 27 pension expense =B22+B23+B24 20

А. 1 date 2 dec 31 2017 B particulars pension expense cash pension assets /liabilities I CD debit credit 600001 50000 10000 ooo wa uen dec 31 2018 866001 51800 pension expense accumulated other comprehensive income (G/L) cash pension assets /liabilities 60000 78400 10 11 dec 31 2019 12 13 14 187500 26331 pension expense accumulated other comprehensive income (G/L) cash pension assets /liabilities 105000 85133 15 16

D credit А B i date particulars 2 dec 31 2017 pension expense cash pension assets /liabilities debit 60000 50000 =C2-D3 5 60000 78400 dec 31 2018 pension expense 86600 accumulated other comprehensive income (G/L) =D8+D9-C6 cash 9 pension assets /liabilities 10 11 dec 31 2019 pension expense 187500 12 accumulated other comprehensive income (G/L) I=81033-78400 cash 14 pension assets /liabilities 15 13 105000 =C11+C12-D13