Question

1. Captiva Company adopts acceptable accounting for its defined benefit pension plan on January 1, 2016, with the following beginning balances: plan assets $600,000; projected benefit obligation $600,000. Other data relating to 3 years’ operation of the plan are shown below:

2018 $ 61,000 8% Annual service cost Settlement rate and expected rate of return Actual return on plan assets Annual funding (contributions) Benefits paid Prior service cost (plan amended, 1/1/17) Amortization of prior service cost Change in actuarial assumptions establishes a December 31, 2018, projected benefit obligation of: 2016 $40,000 8% 40,000 11,000 26,000 2017 $ 48,000 8% 50,000 30,000 31,000 280,000 38,000 60,000 58,000 45,000 56,000 980,000

Instructions

(a) Prepare a pension worksheet presenting all 3 years’ pension balances and activities. Use of Excel is REQUIRED.

(b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year.

(c) Indicate the pension-related amounts reported in the financial statements for 2018.

Answer 1

Captiva Company Pension Worksheet - 2016,2017,2018 General Entries OCI - Prior Service Cash Cost OCI -Gain/Loss Annual Pension Expense Pension Asset/Liabilities 1 Memo Record Project Benefit Obiligation Plan Assets 600,000 Cr. 600,000 Dr. 40,000 Cr. 48,000 Cr. 40,000 Dr. 40,000 Dr. 48,000 Dr. 40,000 8,000 Cr. 8,000 Dr. 11,000 Cr. 11,000 Dr. 26,000 Cr. 26,000 Dr. 40,000 Dr. 11,000 Cr. 8,000 Dr. 37,000 Cr. 8,000 Dr. 37,000 Cr. 625,000 Dr Items Balance Jan.1, 2016 Service Cost Interest Cost Actual Return Unexpected Loss Contributions Benefits Journal Entry for 2016 Accumulated OCI Dec 31, 2015 Balance Dec 31, 2016 Additional PSC, 1/1/2017 Balance Jan 1, 2017 Service Cost Interest Cost Actual Return Amortization of PSC Contributions Benefits Journal Entry for 2017 Accumulated OCI Dec 31, 2016 Balance Dec 31, 2017 280,000 Dr. 662,000 Cr. 280,000 Cr. 942,000 Cr. 48,000 Cr. 75,360 Cr. 48,000 Dr. 75,360 Dr. 50,000 Cr. 38,000 Dr. 50,000 Dr. 38,000 Cr. 30,000 Cr. 30,000 Dr. 31,000 Cr. 31,000 Dr. 111,360 Dr. 30,000 Cr. 242,000 Dr. 323,360 Cr. 8,000 Dr. 8,000 Dr. 242,000 Dr. 360,360 Cr. 1,034,360 Cr. 674,000 Dr.

61,000 Cr. 82,749 Cr. 61,000 Dr. 82,749 Dr. 60,000 Cr. 6,080 Dr. 56,000 Dr. 60,000 Dr. 6,080 Cr. 56,000 Cr. Service Cost Interest Cost Actual Return Unexpected gain Amortization of PSC Contributions Benefits Liability Gain Journal Entry for 2018 Accumulated OCI Dec 31, 2017 Balance Dec 31, 2018 58,000 58,000 Dr. 45,000 Cr. 45,000 Dr. 153,109 Dr. 145,829 Dr. 58,000 Cr. 127,360 Dr 56,000 Cr. 242,000 Dr. 186,000 Dr. 153,109 Cr 159,189 Cr 8,000 Dr. 151,189 Cr 233,000 Cr. 980,000 Cr. 747,000 Dr.

Working Notes: 1) Interest Cost = (Projected Benefit obligation at the beginning of year x Interest rate) 2016 = (600,000 ~ 8%) 48,000 2017 = (942,000 ~ 8%) 75,360 2018 = (1,034,360 x 8%) 82,749 2) Unexpected Loss (Expected Return - Actual Return) Expected Return = (Plan Assets at the beginning > Expected Return) 2016 Expected Return = (600,000 ~ 8%) 48,000 Actual Return (40,000) Unexpected loss 8,000 2017 Expected Return = (625,000 ~ 8%) 50,000 Actual Return (50,000) Unexpected loss /(Gain) 2018 Expected Return = (674,000 ~ 8%) 53,920 Actual Return (60,000) Unexpected loss /(Gain) (6,080) Calculation of Liability Gain Projected Benefit obligation as per acturial assumption 980,000 Less: Projected Benefit obligation as on 01/01/18 (1,034,360) Less: Service cost 2018 (61,000) Less: Interest cost 2018 (82,749) Add: Benefits paid 2018 45,000 Liability Gain (153,109)

Credit Date Dec 31, 2016 Debit 40,000 8,000 Account Titles and Explanation Pension Expense Other comprehensive Income - Gain/Loss Pension Asset/Liabilities Cash (to record the pension related amounts) 37,000 11,000 Dec 31, 2017 111,360 242,000 Pension Expense Other comprehensive Income - PSC Pension Asset/Liabilities Cash (to record the pension related amounts) 323,360 30,000 Dec 31, 2018 145,829 127,360 Pension Expense Pension Assets/Liabilities Other comprehensive Income - Gain/Loss Other comprehensive Income - PSC Cash (to record the pension related amounts) 159,189 56,000 58,000

Captiva Company Partial Income Statement For the year Ended December 31, 2018 Income Statement Pension Expense $ | 145,829 $ XXXX Captiva Company Comprehensive Income Statement For the Year Ended December 31, 2018 Net Income Other Comprehensive Income(Loss) Asset gain(loss) 6,080 Liability gain (loss) 153,109 Prior service cost amortization 56,000 Comprehensive Income 215,189 $ XXXX Captiva Company Partial Balance Sheet December 31, 2018 Liabilities Pension liability Stockholders' Equity Accumulated other Comprehensive loss (PSC) Accumulated other Comprehensive loss (G/L) $ 233,000 186,000 151,189