Question

In: Accounting

Turner Inc. provides a defined benefit pension plan to its employees. The company has 150 employees....

Turner Inc. provides a defined benefit pension plan to its employees. The company has 150 employees. The remaining amortization period at December 31, 2016, for prior service cost is 5 years. The average remaining service life of employees is 11 years at January 1, 2017, and 10 years at December 31, 2017. The AOCI—net actuarial (gain) loss was zero at December 31, 2016. Turner smooths recognition of its gains and losses when computing its market-related value to compute expected return.

Additional Information:

December 31,
Description 2017 2016
PBO $ 1,450,000 $ 1,377,000
ABO 1,425,000 1,350,000
Fair value of plan assets 1,395,000 1,085,000
Market-related value of plan assets (smoothed recognition) 1,369,000 1,085,000
AOCI—prior service cost ? 292,000
Balance sheet pension asset (liability) ? (292,000 )
Service cost 117,400
Contribution 169,000
PBO actuarial gain 113,250
Benefit payments made None None
Discount rate 5 % 5 %
Expected rate of return 7 % 7 %

Required:

Compute the amount of prior service cost that would be amortized as a component of pension expense for 2017 and 2018.

Compute the actual return on plan assets for 2017.

Compute the unexpected net gain or loss on plan assets for 2017.

Compute pension expense for 2017.

Prepare the company’s required pension journal entries for 2017.

Compute the 2017 increase/decrease in AOCI—net actuarial (gain) loss and the amount to be amortized in 2017 and 2018.

Confirm that the pension asset (liability) on the balance sheet equals the funded status as of December 31, 2017.

Solutions

Expert Solution

Ans-1 Computation of Prior service cost for 2017 and 2018:

Prior service cost amortization =AOCI-Prior service cost

Average remaining service life

Year ended 2017 (292,000/5) $58,400
Year ended 2018 (292,000/5) $58,400

Ans- 2 Computation of Actual Return on Plan Assets:

Actual return =Ending balance of plan assets-Beginning balance-Contribution

=$1,395,000-$1,085,000-$169,000

=$141,000

Ans-3 Computaion of unexpected gain or loss on plan assets for 2017

Actual return on plan assets $141,000
Less: Expected return ($1,085,000*7%) (75,950)
Unexpected gain $65,050

Ans-Computaion of pension expenses for 2017:

Service cost $117,400
Add:Interest cost ($1,377,000*5%) 68,850
Less:Expected return (75,950)
Add:Amortization of prior service costs 58,400
Total Pension Expenses $168,700

Ans- Journal Entries for 2017:

Pension Expenes A/c Dr. $168,700
AOCI-Prior service cost A/c $58,400
Pension asset (liability) A/c $110,300
(To record pension expenses for 2017)
Pension asset (liability) A/c Dr. $169,000
Cash A/c $169,000
(To record contribution for 2017
Pension asset (liability) A/c Dr. $65,050
AOCI-net actuarial gain (loss) A/c $65,050
(To record the unexpected gain on plan assets)
Pension asset (liability) A/c Dr. $113,250
AOCI-net actuarial gain A/c $113,350
(To record the PBO actuarial gain)

ekkarill92 answered 2 years ago
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