Question

In: Accounting

Rand Medical has a defined benefit pension for which the following pension-related data were available on...

Rand Medical has a defined benefit pension for which the following pension-related data were available on December 31, 2005 (the end of the company’s fiscal period): Projected benefit obligation (PBO): Balance, January 1, 2005 $1,800,000 Service cost 369,000 Interest cost, discount rate, 10% 180,000 Losses (gains) due to changes in actuarial assumptions in 2005 0 Pension benefits paid (189,000) Balance, December 31, 2005 $2,160,000 Plan assets: Balance, January 1, 2005 $ 1,350,000 Actual return on plan assets 135,000 (Expected return on plan assets, $120,000) Contributions 450,000 Pension benefits paid (189,000) Balance, December 31, 2005 $ 1,746,000 January 1, 2005, balances: Unrecognized past service cost (annual amortization $36,000) 216,000 Unrecognized net loss (amortization over 10 years, if needed) 210,000 Unrecognized transition cost 0 Intangible pension asset 0 Prepaid (accrued) pension cost (credit balance) $ (24,000) Required: 1. Calculate Rand’s 2005 pension expense. Show calculations. 2. Prepare Rand’s 2005 journal entry to record pension expense and funding. 3. Reconcile the funded status of the plan with the books at the end of 2005.

Solutions

Expert Solution

Part 1

PBO ($369000 service cost + $180000 interest cost) = $549000

Pension expense:

Service cost

369000

Interest cost

180000

Expected return on the plan assets ($40 actual, plus $4 loss)

(120000)

Amortization of prior service cost

36000

Amortization of net loss

19200

Pension expense

484200

Computation of net gain amortization:

Net gain—AOCI (previous gains exceeded previous losses)

210000

10% of $180000 PBO (greater than $135000 Plan assets)

(18000)

Amount to be amortized

192000

÷ 10 years

Amortization

19200

Part 2

Event

General journal

debit

Credit

1

Pension expense

484200

Plan assets  

120000

Amortization of net loss—OCI

19200

Amortization of prior service cost—OCI

36000

PBO

549000

(to record pension expense)

2

Plan assets

450000

Cash

450000

(to record funding of plant assets)

Part 3

Reconcilation Schedule for December 2005

Projected benefit obligation

(2160000)

Plan assets at fair value

1746000

Funded status

(414000)

Unrecognized prior service cost

36000

Unrecognized net loss (debit)

19200

Prepaid / accured pension cost

(358800)

Adjustment required to recognized minimum liability

(24000)

Accured pension cost liability recognized in balance sheet

(382800)


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