Pension data for Barry Financial Services Inc. include the following: Required:
ID: 2527744 • Letter: P
Question
Pension data for Barry Financial Services Inc. include the following:
Required:
1. Determine pension expense for 2018.
2. Prepare the journal entries to record pension expense, gains and losses (if any), funding, and retiree benefits for 2018.
Explanation / Answer
Service Cost $300
add : Interest on Projected Benefit Obligation (2400*0.07) $168
add : Actual return on Plan assets (2500-265+290)*0.08 $202
add : Amortization of prior period cost $35
add : Gain or Loss $350
Net Periodic Pension Payments $1055
Here is a summary of the relevant costs associated with a defined benefit pension plan, which sum to the net periodic pension cost that is recognized in each accounting period:
+ Service cost
This is the actuarial present value of benefits related to services rendered during the current reporting period. The cost includes an estimate of the future compensation levels of employees from which benefit payments will be derived.
+ Interest cost
This is the interest on the projected benefit obligation. It is a financial item, rather than a cost related to employee compensation.
+ Actual return on plan assets
This is the difference between the fair values of beginning and ending plan assets, adjusted for contributions and benefit payments. It is a financial item, rather than a cost related to employee compensation.
+ Amortization of prior service costs
When an employer issues a plan amendment, it may contain increases in benefits that are based on services rendered by employees in prior periods. If so, the cost of these additional benefits are amortized over the future periods in which those employees active on the amendment date are expected to receive benefits.
+ Gain or loss
This is the gain or loss resulting from a change in the value of a projected benefit obligation from changes in assumptions, or changes in the value of plan assets.
Jounal Entry to record pension expense :
Pension Expense A/c Dr 1055
Expected return on plan assets Dr 225
Amotization of Net Gain -OCI Dr 6
To Amortization of prior Period Cost 35
To PBO (Balancing figure) 1251
Cost Explanation+ Service cost
This is the actuarial present value of benefits related to services rendered during the current reporting period. The cost includes an estimate of the future compensation levels of employees from which benefit payments will be derived.
+ Interest cost
This is the interest on the projected benefit obligation. It is a financial item, rather than a cost related to employee compensation.
+ Actual return on plan assets
This is the difference between the fair values of beginning and ending plan assets, adjusted for contributions and benefit payments. It is a financial item, rather than a cost related to employee compensation.
+ Amortization of prior service costs
When an employer issues a plan amendment, it may contain increases in benefits that are based on services rendered by employees in prior periods. If so, the cost of these additional benefits are amortized over the future periods in which those employees active on the amendment date are expected to receive benefits.
+ Gain or loss
This is the gain or loss resulting from a change in the value of a projected benefit obligation from changes in assumptions, or changes in the value of plan assets.
= Net periodic pension costRelated Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.