Q1: Howard Corp. sponsors a defined-benefit pension plan for its employees. On J
ID: 2596580 • Letter: Q
Question
Q1: Howard Corp. sponsors a defined-benefit pension plan for its employees. On January 1, 2011, the following balances related to this plan.
Plan assets (market-related value) $450,000
Projected benefit obligation 600,000
Pension asset/liability 150,000 Cr.
Prior service cost 75,000
OCI – Loss 65,000
As a result of the operation of the plan during 2011, the actuary provided the following additional data at December 31, 2011.
Service cost for 2011 $ 75,000
Actual return on plan assets in 2011 45,000
Amortization of prior service cost 20,000
Contributions in 2011 115,000
Benefits paid retirees in 2011 70,000
Settlement rate 7%
Expected return rate 8%
Average remaining service life of active employees 10 years
Instructions
(a) Compute pension expense for Howard Corp. for the year 2011 by preparing a pension worksheet (check: pension expense = 101,500).
(b) Prepare the journal entry for pension expense.
Explanation / Answer
Solution:(a)
Howard Corp.
Pension worksheet
for the year 2011
Solution:(b) Journal entry for pension expense:
Particulars Annual pension Expense($) Cash($) OCl- Prior Service Cost($) OCI-Gain/Loss($) Pension Asset/Liability ($) Projected Benefit Obligation($) Plan Assets($) Balance Jan 1,2011 150,000 Cr. 600,000 Cr. 450,000 Dr. Service cost 75,000 Dr. 75,000 Cr. Interest cost($600,000*7%) 42,000 Dr. 42,000 Cr. Actual return 45,000 Cr. 45,000 Dr. Unexpected gain[(450,000*8%)-45,000] 9,000 Dr. 9000 Cr. Amortization of prior Service Cost 20,000 Dr. 20,000 Cr. Amortization of loss[(65,000-60,000)/10] 500 Dr. 500 Cr. Contributions 115,000 Cr. 115,000 Dr. Benefits 70,000 Dr. 70,000 Cr. Journal entry for 2011 101,500 Dr. 115,000 Cr. 20,000 Cr. 9,500 Cr. 43,000 Dr. Accumulated OCI Dec 31, 2010 75,000 Dr. 65,000 Dr. Balance Dec 31,2011 55,000 Dr. 55,500 Dr. 107,000 Cr. 647,000 Cr. 540,000 Dr.Related Questions
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