Problem 20-3 Gottschalk Company sponsors a defined benefit plan for its 100 empl

Question

Problem 20-3

Gottschalk Company sponsors a defined benefit plan for its 100 employees. On January 1, 2014, the company’s actuary provided the following information.

The average remaining service period for the participating employees is 10 years. All employees are expected to receive benefits under the plan. On December 31, 2014, the actuary calculated that the present value of future benefits earned for employee services rendered in the current year amounted to $53,400; the projected benefit obligation was $495,500; fair value of pension assets was $277,200; the accumulated benefit obligation amounted to $367,600. The expected return on plan assets and the discount rate on the projected benefit obligation were both 10%. The actual return on plan assets is $11,400. The company’s current year’s contribution to the pension plan amounted to $65,400. No benefits were paid during the year.

Determine the components of pension expense that the company would recognize in 2014.

Components of Pension Expense

Service Cost - 53,400

Interest on Projected Benefit Obligation - 38,060

Actual Return on Plan Assets - (11,400)

Unexpected Loss - (8,640)

Amortization of Gain or Loss - 0

Amortization of Prior Service Cost - 15,510

Pension Expense - 86,930

Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2014

Other Comprehensive Income (G/L) -

Pension Expense -

Cash -

Pension Asset/Liability -

Other Comprehensive Income (PSC) -

Compute the amount of the 2014 increase/decrease in gains or losses and the amount to be amortized in 2014 and 2015.

2014 Increase/Decrease in _____________ $_____________

Amortization in 2014

Amortization in 2015

Indicate the pension amounts reported in the financial statement as of December 31, 2014.

Gottschalk Company Income Statement (Partial) For the year ended Dcember 31, 2014

Gottschalk Company Comprehensive Income Statement December 31, 2014

Gottschalk company Balance Sheer (Partial) December 31, 2014

Accumulated other comprehensive loss (PSC) $155,100 Pension plan assets (fair value and market-related asset value) 200,400 Accumulated benefit obligation 268,500 Projected benefit obligation 380,600

Explanation / Answer

Since, part 1 has already been completed, the rest of the parts have been answered.

___________

Part 2)

The journal entry is given below:

__________

Part 3)

The increase/decrease for the Year 2014 is calculated as follows:

2014:

The net loss of $32,080 will be treated as the opening balance (1/1/2015) in the accumulated other comprehensive income (G/L) account . The amortization of loss/gain 2014 will occur only if 10% of the greater of $495,500 or $277,200 is less than the opening balance in accumulated other comprehensive income (G/L) account. As the amount of $49,550 is more than the balance of $32,080, no gain or loss amortization will take place in the Year 2015.

Also, as there was no balance in accumulated other comprehensive income (G/L) account as on 1/1/2014, there will be no amortization of loss/gain in the year 2014.

Amortization for 2014 = 0

Amortization for 2015 = 0

__________

Part 4)

The partial income statement is given below:

__________

Part 5)

The comprehensive income statement is given below:

__________

Part 6)

The balance sheet is provided below:

Account Titles Debit Credit Other Comprehensive Income (G/L) (check part 3 for computation) $32,080 Pension Expense (from Part 1) $86,930 Cash $65,400 Pension Asset/Liability (32,080 + 86,930 - 65,400 - 15,510) $38,100 Other Comprehensive Income (PSC) (155,100/10) $15,510

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