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B EXERCISES
(L0 4,
6)
E20-1B (Pension Expense, Journal Entries) The following information is available for the pension plan
of Talkspace Corporation for the year 2010.
Actual and expected return on plan assets
Benefits paid to retirees
Contributions (funding)
Interest/discount rate
Prior service cost amortization
Projected benefit obligation, January 1, 2010
Service cost
$
65,000
163,000
230,000
8%
40,000
2,600,000
250,000
Instructions
(a) Compute pension expense for the year 2010.
(b) Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2010.
(L0 4,
6)
E20-2B (Computation of Pension Expense) McCaw Company provides the following information
about its defined-benefit pension plan for the year 2010.
Service cost
Contribution to the plan
Prior service cost amortization
Actual and expected return on plan assets
Benefits paid
Plan assets at January 1, 2010
Projected benefit obligation at January 1, 2010
Accumulated OCI (PSC) at January 1, 2010
Interest/discount (settlement) rate
$ 210,000
263,000
35,000
123,000
220,000
1,440,000
1,800,000
325,000
9%
Instructions
Compute the pension expense for the year 2010.
(L0 5)
E20-3B (Preparation of Pension Work Sheet) Using the information in E20-2B, prepare a pension work
sheet inserting January 1, 2010, balances, showing December 31, 2010, balances, and the journal entry
recording pension expense.
(L0 5)
E20-4B (Basic Pension Worksheet) The following facts apply to the pension plan of I-Pass Corporation for the year 2010.
Plan assets, January 1, 2010
Projected benefit obligation, January 1, 2010
Settlement rate
Service cost
Contributions (funding)
Actual and expected return on plan assets
Benefits paid to retirees
$950,000
950,000
6%
75,000
10,000
40,600
42,200
Instructions
Using the preceding data, compute pension expense for the year 2010. As part of your solution, prepare
a pension worksheet that shows the journal entry for pension expense for 2010 and the year-end balances
in the related pension accounts.
(L0 6)
E20-5B (Application of Years-of-Service Method) Ace Inc. has five employees participating in its
defined-benefit pension plan. Expected years of future service for these employees at the beginning of
2010 are as follows.
Employee
Jane
John
Jimmy
Jenny
Jerry
Future
Years of Service
6
1
3
6
4
On January 1, 2010, the company amended its pension plan increasing its projected benefit obligation by
$210,000.
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Chapter 20 Accounting for Pensions and Postretirement Benefits
Instructions
Compute the amount of prior service cost amortization for the years 2010 through 2015 using the yearsof-service method setting up appropriate schedules.
(L0 4,
7)
E20-6B (Computation of Actual Return) Hunt Syrups Company provides the following pension plan
information.
Fair value of pension plan assets, January 1, 2010
Fair value of pension plan assets, December 31, 2010
Contributions to the plan in 2010
Benefits paid retirees in 2010
$1,250,000
1,460,000
160,000
206,000
Instructions
From the data above, compute the actual return on the plan assets for 2010.
(L0 5,
6)
E20-7B (Basic Pension Worksheet) The following defined pension data of Eagle Homes Corporation
apply to the year 2010.
Projected benefit obligation, January 1, 2010
(before amendment)
Plan assets, January 1, 2010
Pension liability, January 1, 2010
On January 1, 2010, Eagle Home Corp., through plan amendment,
grants prior service benefits having a present value of
Settlement rate
Service cost
Contributions (funding)
Actual and expected return on plan assets
Benefits paid to retirees
Prior service cost amortization for 2010
$1,255,000
1,195,600
59,400
200,000
6%
69,000
85,000
43,610
52,000
25,000
Instructions
For 2010, prepare a pension worksheet for Eagle Homes that shows the journal entry for pension expense
and the year-end balances in the related pension accounts.
(L0 8)
E20-8B (Application of the Corridor Approach) XTRA Inc. has beginning-of-the-year present values
for its projected benefit obligation and market-related values for its pension plan assets.
2010
2011
2012
2013
Projected
Benefit
Obligation
Plan
Assets
Value
$1,000,000
1,250,000
1,600,000
2,100,000
$ 900,000
1,100,000
1,450,000
2,000,000
The average remaining service-life per employee in 2010 and 2011 is 8 years and in 2012 and 2013 is 11
years. The net gain or loss that occurred during each year is as follows: 2010, $165,000 gain; 2011, $40,000
gain; 2012, $30,000 loss; and 2013, $15,000 loss. (In working the solution, the gains and losses must be aggregated to arrive at year-end balances.)
Instructions
Using the corridor approach, compute the amount of net gain or loss amortized and charged to pension
expense in each of the 4 years, setting up an appropriate schedule.
(L0 9)
E20-9B (Disclosures: Pension Expense and Other Comprehensive Income) Ocean Air provides the
following information related to its defined-benefit pension plan.
Balances or Values at December 31, 2010
Projected benefit obligation
Accumulated benefit obligation
Vested benefit obligation
Fair value of plan assets
Accumulated OCI (PSC)
Accumulated OCI—Net loss (January 1, 2010 balance, –0–)
Pension liability
$4,195,000
3,280,000
2,680,000
3,726,000
368,000
26,800
469,000
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B Exercises
Other pension plan data:
Service cost for 2010
Prior service cost amortization for 2010
Actual return on plan assets in 2010
Expected return on plan assets in 2010
Interest on January 1, 2010, projected benefit obligation
Contributions to plan in 2010
Benefits paid
$ 94,000
36,800
122,200
149,000
335,600
189,900
231,000
Instructions
(a) Prepare the note disclosing the components of pension expense for the year 2010.
(b) Determine the amounts of other comprehensive income and comprehensive income for 2010. Net
income for 2010 is $400,000.
(c) Compute the amount of accumulated other comprehensive income reported at December 31, 2010.
(L0 5)
E20-10B (Pension Worksheet) Dade Shutters Inc. sponsors a defined-benefit pension plan for its employees. On January 1, 2010, the following balances relate to this plan.
Plan assets
Projected benefit obligation
Pension liability
Prior service cost
$1,650,000
1,960,000
310,000
240,000
As a result of the operation of the plan during 2010, the following additional data are provided by the
actuary.
Service cost for 2010
Settlement rate, 6%
Actual return on plan assets in 2010
Amortization of prior service cost
Expected return on plan assets
Unexpected gain from change in projected benefit obligation,
due to change in actuarial predictions
Contributions in 2010
Benefits paid retirees in 2010
$133,000
108,000
24,000
160,000
211,000
143,000
178,000
Instructions
(a) Using the data above, compute pension expense for Dade Shutters for the year 2010 by preparing
a pension worksheet.
(b) Prepare the journal entry for pension expense for 2010.
(L0 4,
5, 9)
E20-11B (Pension Expense, Journal Entries, Statement Presentation) Western Zoo Corporation sponsors a defined-benefit pension plan for its employees. The following data relate to the operation of the
plan for the year 2010 in which no benefits were paid.
1. The actuarial present value of future benefits earned by employees for services rendered in 2010
amounted to $186,000.
2. The company’s funding policy requires a contribution to the pension trustee amounting to $95,000
for 2010.
3. As of January 1, 2010, the company had a projected benefit obligation of $2,400,000, an accumulated
benefit obligation of $2,000,000, and accumulated OCI (PSC) of $900,000. The fair value of pension
plan assets amounted to $1,500,000 at the beginning of the year. The market-related asset value was
equal to $1,500,000. The actual and expected return on plan assets was $90,000. The settlement rate
was 8%. No gains or losses occurred in 2010 and $50,000 of benefits was paid.
4. Amortization of prior service cost was $45,000 in 2010. Amortization of net gain or loss was not
required in 2010.
Instructions
(a) Determine the amounts of the components of pension expense that should be recognized by the
company in 2010.
(b) Prepare the journal entry or entries to record pension expense and the employer’s contribution
to the pension trustee in 2010.
(c) Indicate the amounts that would be reported on the income statement and the balance sheet for
the year 2010.
(L0 4,
6, 7,
8, 9)
E20-12B (Pension Expense, Journal Entries, Statement Presentation) Vice Oil received the following
selected information from its pension plan trustee concerning the operation of the company’s definedbenefit pension plan for the year ended December 31, 2010.
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Chapter 20 Accounting for Pensions and Postretirement Benefits
Projected benefit obligation
Market-related and fair value of plan assets
Accumulated benefit obligation
Accumulated OCI (G/L)—Net gain
January 1,
2010
December 31,
2010
$5,000,000
1,800,000
4,000,000
–0–
$5,250,000
2,100,000
4,100,000
(400,000)
The service cost component of pension expense for employee services rendered in the current year
amounted to $225,000 and the amortization of prior service cost was $200,000. The company’s actual funding (contributions) of the plan in 2010 amounted to $156,000. The expected return on plan assets and the
actual rate were both 8%; the interest/discount (settlement) rate was 8%. Accumulated OCI (PSC) had a
balance of $3,200,000 on January 1, 2010. Assume no benefits paid in 2010.
Instructions
(a) Determine the amounts of the components of pension expense that should be recognized by the
company in 2010.
(b) Prepare the journal entries to record pension expense and the employer’s contribution to the pension plan in 2010.
(c) Indicate the pension-related amounts that would be reported on the income statement and the
balance sheet for Vice Oil for the year 2010.
(L0 4,
6, 7,
8, 9)
E20-13B (Computation of Actual Return, Gains and Losses, Corridor Test, Prior Service Cost, and
Pension Expense) Shiloh Acres sponsors a defined-benefit pension plan. The corporation’s actuary provides the following information about the plan.
January 1,
2010
December 31,
2010
$500
650
860
600
$610
795
996
740
10%
?
?
100
80
50
Vested benefit obligation
Accumulated benefit obligation
Projected benefit obligation
Plan assets (fair value)
Settlement rate and expected rate of return
Pension asset/liability
Accumulated OCI (PSC)
Service cost for the year 2010
Contributions (funding in 2010)
Benefits paid in 2010
260
210
The average remaining service life per employee is 10 years.
Instructions
(a) Compute the actual return on the plan assets in 2010.
(b) Compute the amount of other comprehensive income (G/L) as of December 31, 2010. (Assume
the January 1, 2010, balance was zero.)
(c) Compute the amount of net gain or loss amortization for 2010 (corridor approach).
(d) Compute the amount of prior service cost amortization for 2010.
(e) Compute pension expense for 2010.
(L0 5)
E20-14B (Worksheet for E20-13B) Using the information in E20-13B about Shiloh Acres’ definedbenefit pension plan, prepare a 2010 pension worksheet with supplementary schedules of computations.
Prepare the journal entries at December 31, 2010, to record pension expense and related pension transactions. Also, indicate the pension amounts reported in the balance sheet.
(L0 4)
E20-15B (Pension Expense, Journal Entries) Ultra-Home Corporation provides the following information related to its defined-benefit pension plan for 2010.
Pension liability (January 1)
Accumulated benefit obligation (December 31)
Actual and expected return on plan assets
Contributions (funding) in 2010
Fair value of plan assets (December 31)
Settlement rate
Projected benefit obligation (January 1)
Service cost
$ 500,000
1,250,000
15,000
210,000
960,000
8%
1,500,000
165,000
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B Exercises
Instructions
(a) Compute pension expense and prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2010.
(b) Indicate the pension-related amounts that would be reported in the company’s income statement
and balance sheet for 2010.
(L0 8)
E20-16B (Amortization of Accumulated OCI (G/L) Corridor Approach, Pension Expense Computation) The actuary for the pension plan of Regina Company calculated the following net gains and
losses.
Incurred
during the Year
(Gain) or Loss
2010
2011
2012
2013
$ (660,000)
250,000
1,000,000
400,000
Other information about the company’s pension obligation and plan assets is as follows.
As of January 1
Projected Benefit
Obligation
Plan Assets
(market-related asset value)
2010
2011
2012
2013
$4,000,000
4,500,000
4,900,000
5,250,000
$3,400,000
3,640,000
3,900,000
4,360,000
Regina Company has a stable labor force of 250 employees who are expected to receive benefits under
the plan. The total service-years for all participating employees are 3,500. The beginning balance of
Accumulated OCI (G/L) is zero on January 1, 2010. The market-related value and the fair value of plan
assets are the same for the 4-year period. Use the average remaining service life per employee as the basis
for amortization.
Instructions
(Round to the nearest dollar.)
Prepare a schedule which reflects the minimum amount of Accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2010, 2011, 2012, and 2013. Apply the
“corridor” approach in determining the amount to be amortized each year.
(L0 8)
E20-17B (Amortization of Accumulated OCI (G/L)) Central Innovations Company sponsors a definedbenefit pension plan for its 175 employees. The company’s actuary provided the following information
about the plan.
January 1
Projected benefit obligation
Accumulated benefit obligation
Plan assets (fair value and market related
asset value)
Accumulated net (gain) or loss (for purposes
of the corridor calculation)
Discount rate (current settlement rate)
Actual and expected asset return rate
December 31
2010
2010
2011
$1,650,000
1,400,000
$2,150,000
1,710,000
$2,680,000
2,165,000
1,350,000
1,900,000
2,350,000
–0–
(150,000)
10%
6%
(215,000)
8%
6%
The average remaining service life per employee is 7 years. The service cost component of net periodic
pension expense for employee services rendered amounted to $175,000 in 2010 and $220,000 in 2011.
Accumulated OCI (PSC) on January 1, 2010, was $525,000. No benefits have been paid.
Instructions
(Round to the nearest dollar.)
(a) Compute the amount of accumulated OCI (PSC) to be amortized as a component of net periodic
pension expense for each of the years 2010 and 2011.
(b) Prepare a schedule which reflects the amount of accumulated OCI (G/L) to be amortized as a component of net periodic pension expense for 2010 and 2011.
(c) Determine the total amount of net periodic pension expense to be recognized by Central Innovations Company in 2010 and 2011.
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Chapter 20 Accounting for Pensions and Postretirement Benefits
(L0 5,
8)
E20-18B (Pension Worksheet—Missing Amounts) The accounting staff of Poe Inc. has prepared the
following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The
company has asked your assistance in completing the worksheet and completing the accounting tasks
related to the pension plan for 2010.
Pension Worksheet—Poe Inc.
I
General Journal Entries
Annual
Pension
Expense
Items
Balance, Jan. 1, 2010
Service cost
Interest cost
Actual return
Unexpected gain
Amortization of PSC
Contributions
Benefits
Liability decrease
Journal entry
Cash
OCI—Prior
Service
Cost
Memo Record
OCI—
Gain/Losse
Pension
Asset/Liability
Projected Benefit
Obligation
Plan Assets
4,000
3,200
800 Cr.
(1)
760
(2)
400
(3)
10
150
(4)
80
(5)
700
700
300
(6)
(7)
(8)
Accumulated OCI, Dec. 31, 2009
Balance, Dec. 31, 2010
(9)
300
500
(10)
800
0
720
350
(11)
750
4,360
3,610
Instructions
(a) Determine the missing amounts in the 2010 pension worksheet, indicating whether the amounts
are debits or credits.
(b) Prepare the journal entry to record 2010 pension expense for Poe Inc.
(c) The accounting staff has heard of a pension accounting procedure called “corridor amortization.” Is Poe required to record any amounts for corridor amortization in (1) 2010? In (2) 2011?
Explain.
(L0 10,
11)
*E20-19B (Postretirement Benefit Expense Computation) Family Favors Inc. provides the following information about its postretirement benefit plan for the year 2010.
Service cost
Prior service cost amortization
Contribution to the plan
Actual and expected return on plan assets
Benefits paid
Plan assets at January 1, 2010
Accumulated postretirement benefit
obligation at January 1, 2010
Accumulated OCI (PSC) at January 1, 2010
Discount rate
$ 134,000
120,000
50,000
22,000
68,000
265,000
1,545,000
1,280,000
6%
Instructions
Compute the postretirement benefit expense for 2010.
(L0 10,
11)
*E20-20B (Postretirement Benefit Worksheet) Using the information in *E20-19B prepare a worksheet
(L0 10,
11)
*E20-21B (Postretirement Benefit Expense Computation) Banc Six Corp. provides the following infor-
inserting January 1, 2010, balances, showing December 31, 2010, balances, and the journal entry recording postretirement benefit expense.
mation related to its postretirement benefits for the year 2010.
Accumulated postretirement benefit obligation at January 1, 2010
Actual and expected return on plan assets
Prior service cost amortization
Discount rate
Service cost
$1,195,000
2,500
105,000
8%
121,000
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B Exercises
Instructions
Compute postretirement benefit expense for 2010.
(L0 10,
11)
*E20-22B (Postretirement Benefit Expense Computation) Miami Co. provides the following information about its postretirement benefit plan for the year 2010.
Service cost
Prior service cost amortization
Contribution to the plan
Actual and expected return on plan assets
Benefits paid
Plan assets at January 1, 2010
Accumulated postretirement benefit obligation at January 1, 2010
Accumulated OCI (PSC) at January 1, 2010
Discount rate
$ 131,000
21,000
60,000
16,000
62,000
281,000
605,000
125,000 Dr.
8%
Instructions
Compute the postretirement benefit expense for 2010.
(L0 10,
11)
*E20-23B (Postretirement Benefit Worksheet) Using the information in *E20-22, prepare a worksheet
(L0 10,
11)
*E20-24B (Postretirement Benefit Worksheet—Missing Amounts) The accounting staff of Dade Inc.
inserting January 1, 2010, balances, showing December 31, 2010, balances, and the journal entry recording postretirement benefit expense.
has prepared the following postretirement benefit worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2010.
Postretirement Benefit Worksheet—Dade Inc.
General Journal Entries
Items
Balance, Jan. 1, 2010
Service cost
Interest cost
Actual/Expected return
Contributions
Benefits
Amortization of PSC
Journal entry for 2010
Accumulated OCI, Dec. 31, 2009
Balance, Dec. 31, 2010
Annual
Expense
Cash
Memo Record
Other
Comprehensive Postretirement
Income—PSC Asset/Liability
600,000
APBO
800,000
(1)
110,000
(2)
64,000
(3)
200,000
10,000
42,000
(4)
22,000
11,000
(6)
Plan Assets
22,000
(5)
(7)
(8)
(9)
88,000 Dr.
77,000 Dr.
722,000 Cr.
952,000 Cr.
230,000 Dr.
Instructions
(a) Determine the missing amounts in the 2010 postretirement worksheet, indicating whether the
amounts are debits or credits.
(b) Prepare the journal entry to record 2010 postretirement expense for Dade Inc.
(c) What discount rate is Dade using in accounting for the interest on its other postretirement benefit plan? Explain.
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