Question

At the end of 2019, the balances in the accounts related to the defined benefit pension plan of the Mansfield Company were as follows:

            Projected benefit obligation                                                                           $1,470,000

            Unrecognized prior service cost (remainder to be amortized over 12 years)             108,000

            Unrecognized net loss                                                                                         192,000

            Plan assets (at fair value)                                                                                  1,087,500

            Pension liability                                                                                                 382,500

On 1/1/20, Mansfield amended the plan to provide an increased amount of pension benefits; the prior service cost resulting from this amendment was $60,000. At 1/1/20, the average remaining service life of employees expected to receive benefits was 12 years.

The following information relates to the year 2020:

                   Service Cost                                                          $184,500

                   Settlement rate                                                                8%

                   Expected rate of return on plan assets                              7%

                   Plan contribution (at year-end)                                 135,000

                   Benefit payments to retirees (at year-end)                 120,000

                  

In 2020, Mansfield’s actual return on plan assets was $80,000. Mansfield follows a policy of recognizing gains/losses on a delayed basis using the "corridor approach". In 2020, there was one change in the estimates and assumptions relating to computation of the projected benefit obligation, resulting in an increase in the PBO of $48,000.

Required:

1.    Prepare Mansfield’s pension worksheet, and prepare the journal entry that Mansfield would make to record the expense calculated.
2. Prepare the pension note required for the 12/31/20 financial statements.

Answer 1

Alternative 1

Alternative 2

60,000 General Journal Entries Memo Record Note :Past service cost during the year is added to the opening balance of PBO Workings Pension Work Sheet 2019 Negative sign indicates Credits Positive Sign Indicates Debits Annual Pension Items Expense OCI -Prior Service Cost OCI - Gain /Loss Pension Asset/Liability Projected Benefit Obligation Cash Plan assets Balance, Jan. 1, 2019 (after adjustment of past service cost created) (442,500) Cr (1,530,000) Cr. 1,087,500 Dr. (184,500) Cr. (122,400) Cr. 80,000 Dr. (3,875) Cr. (14,000) Cr. (3,250) Cr. Service cost 184,500 Dr. Interest cost (settlement rate (8%) x adjusted PBO) 122,400 Dr. Actual Return (80,000) Cr. Unexpected Loss /(gain ) 3,875 Dr. Amortisation of Past service cost (168,000/12) 14,000 Dr. Amortization of net gain or loss-AOCI 3,250 Dr. Contributions Benefits Decrease/increase in PBO-(actuarial loss/gain) Journal entry for 2019 248,025 Dr. Accumulated OCI, 1 Jan 19 (after adjustment of past service cost created) Balance Dec. 2019 (135,000) Cr. 135,000 Dr. (120,000) Cr. 120,000 Dr. (48,000) Cr (135,000) Cr. (139,900) Dr (14,000) Cr. 168,000 Dr. 154,000 Dr. 48,000 Dr. 40,875 Cr. 192,000 Dr. 232,875 Dr. (582,400) Cr (1,764,900) Cr. 1,182,500 Dr. Corridor Approach Projected Benefit Obligation Year Plan assets Corridor @10% Years Cumulative Unrecognized Gain or loss 192,000.00 Minimum amortization of gain or Loss 3,250 2019 1,530,000.00 1,087,500.00 153,000.00 loss 12

credit Prepare all the Journal Entries Journal entry (or entries) to record all pension effects for 2019 Account title & explanation Debit Pension expense 248,025 Other comprehensive income(G/L) 40,875 Other comprehensive income(PSC) Pension Asset / Liability Cash 14,000 139,900 135,000 Record the journal entry for pension expense for 2019 248,025 76,125 Pension Expense Plann Assets Amortisation of net gain-OCI Amortisation of Prior service cost-OCI PBO 3,250 14,000 306,900 Record Past Service Cost incurred during the year Loss-OCI (PSC) PBO 60,000 60,000 Record the journal entry for gain or losses in plan assets for 2019 Plan Assets Loss-OCI 3,875 3,875 Record the journal entry for gain or losses in PBO for 2019 Loss-OCI PBO 48,000 48,000 Record the journal entry for cash contribution to plan assets for 2019 Plan Assets 135,000 Cash 135,000 Record the journal entry for benefits paid to employees for 2019 PBO Plan Assets 120,000 120,000