In each of the following scenarios, prepare journal entries, as necessary, or gi

Question

In each of the following scenarios, prepare journal entries, as necessary, or give proper accounting recognition. For each, tell why you made an entry or accounting recognition or why you did not.

Identify the appropriate fund to account for construction-type special assessments.

Big City provides a defined benefit pension plan for employees of the city water department, an enterprise fund. Assume that the service cost component is $420,000, and interest on the pension liability is $380,000 for the year. Actual returns on plan assets for the year were $300,000, while the projected level of earnings on plan investments was $360,000. This difference is to be amortized over a five-year period, beginning this year. Finally, assume the City is amortizing a deferred inflow resulting from a change in plan assumptions from a prior year in the amount of $10,000 per year.

Explanation / Answer

Pensions or any Post-employment benefit plans is the amount payable by any company at the end of service of the employee. This amount is paid for all the period employee has worked for our company, and hence this expense evenly belongs to whole service period and not just for the year of payment. Thus, the company needs to account for the said expense throughout the service life of the employee.

Calculation of Pension Expense:

Journal Entries:

Particulars Amount($) Service Cost 420000 Add: Interest Costs 380000 Add: Prior Service Cost Amortisation Less: Return on Plan Asset -300000 Less: Deferred Loss from plan asset (360000-300000) -60000 Amortisation of excess deferred loss (CY) 12000 Amortisation of excess deferred loss (PY) 10000 Net Pension Expense 462000

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