Exercise 20-15 Account Titles and Explanation Debit Credit Latoya Company Income

Question

Exercise 20-15

Account Titles and Explanation

Debit

Credit

Latoya Company
Income Statement (Partial)
For the year ended December 31, 2014.

Latoya Company
Balance Sheet (Partial)
December 31, 2014

Exercise 20-15

Latoya Company provides the following selected information related to its defined benefit pension plan for 2014.
Pension asset/liability (January 1) $31,260 Cr. Accumulated benefit obligation (December 31) 408,060 Actual and expected return on plan assets 11,950 Contributions (funding) in 2014 158,090 Fair value of plan assets (December 31) 807,010 Settlement rate 10 % Projected benefit obligation (January 1) 741,010 Service cost 80,701
(a) Compute pension expense.
Pension expense for 2014

$

Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2014. Preparation of a pension worksheet is not required. Benefits paid in 2014 were $72,780. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

(b) Indicate the pension-related amounts that would be reported in the company’s income statement and balance sheet for 2014.

Latoya Company
Income Statement (Partial)
For the year ended December 31, 2014.

DividendsExpensesNet Income / (Loss)Retained Earnings – January 1, 2014Retained Earnings – December 31, 2014RevenuesTotal ExpensesTotal Revenues

    Amortization of PSC    Interest Expense    Pension Expense    Rent Expense    Service Cost    

$

Latoya Company
Balance Sheet (Partial)
December 31, 2014

Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity

    Accounts Payable    Accounts Receivable    Accumulated Depreciation    Accumulated Other Comprehensive Income (PSC)    Accumulated Other Comprehensive Loss (PSC)    Common Stock    Pension Liability    Retained Earnings    

$

Explanation / Answer

Solution:

a) Computation of pension expense:

Journal entry to record pension expense and the employer’s contribution to the pension plan in 2014:

b) Pension-related amounts that would be reported in the company’s income statement and balance sheet for 2014:

Working Note:

Pension Liability = 31,260 - 11,950 = 19,310

Pension Worksheet:

* 741,010 - 31,260 = 709,750

** 807,010 - 709,750 - 11,950 - 158,090 = 72,780

Service Cost          80,701 Interest Cost (741,010 * 10%)          74,101 Less Expected return on plan assets       (11,950) Pension expense for 2014       142,852

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