Question

Preparing Pension Entries and Pension Worksheet Rollo Company has a defined benefit pension plan. At the end of the current reporting period, December 31, 2020, the following information was available: Projected benefit obligation Balance, Jan. 1, 2020 $300,000 Service cost 80,000 Interest cost ($150,000 x 10% discount rate) 30,000 Change in actuarial assumptions on Dec. 31, 2020 (800) Pension benefits paid (84,000) Balance, Dec. 31, 2020 $325,200 Accumulated benefit obligation $240,000 Vested benefit obligation $80,000 Plan assets Balance, Jan. 1, 2020 Actual return on plan assets (same as expected) Funding of plan by Rollo Pension benefits paid to retirees Balance, Dec. 31, 2020 $320,000 32,000 60,000 (84,000) $328,000 Accumulated other comprehensive income Jan. 1, 2020 Accumulated OCI—Prior Service Cost $40,000 Dr. Accumulated OCI-Pension Gain/Loss 4,000 Cr.

Answer 1

PENSION WORKSHEET

Items

Reported net in financial statement

Reported on Balance sheet

Reported on comprehensive income

Accumulated OCI

OCI

Plan Assets

PBO

Net Pension Asset/Liability

Prior service cost

Pension gain/ loss

Cash outflow

Pension expense

Prior service cost

Pension gain/loss

Balance January 1, 2020

320,000

Dr

300,000

Cr

40,000

Dr

4,000

Cr

Service cost

80,000

Cr

80,000

Dr

Interest cost

30,000

Cr

30,000

Dr

Expected return

32,000

Dr

32,000

Cr

Actuarial gain on PBO

800

Cr

800

Dr

Prior service cost amortization

4,000

Cr

4,000

Dr

Pension gain/loss amortization

3,600

Cr

3,600

Dr

Contribution to fund

60, 000

Dr

60,000

Cr

Benefit payments

84,000

Cr

84,000

Dr

Balance Dec 31, 2020

328,000

Dr

326,800

Cr

36,000

Dr

76,00

Cr

60,000

Cr

85,600

Dr

800

Dr

Working notes:

1) Amortization of loss

2020 corridor test

Accumulated net gain/loss at the beginning of the year	(4,000)
10% of larger of PBO or plan asset i.e. higher of (300,000 * 10%) or (320,000 * 10%)	(32,000)
Amortizable Amount	(36,000)
2018 amortization (36,000 / 10years)	3,600

2) Prior service cost amortization = PSC given / average number of years remaining

                                                             = 40,000 / 10 = 4,000

JOURNAL ENTRIES

Date	Particulars	Debit	Credit
Dec 31, 2020	Pension expense	85,600
	Accumulated Other comprehensive income PSC	36,000
	To Pension Asset/liability		5,4000
	To cash		60,000
	To Accumulated Other comprehensive income gain / loss		7,600
	(To record pension expense)
Dec 31, 2020	Other comprehensive income gain / loss	800
	To PBO		800
	(To record deferral of actuarial gain on PBO)
Dec 31, 2020	Plan assets	60,000
	To cash		60,000
	(To record plan funding)
Dec 31, 2020	PBO	84,000
	To plan assets		84,000
	(To record benefits paid)