Question

Barrett Corporation manufactures leather products. The corporation uses a non-contributory, defined benefit pension plan for its 230 employees.

The footnote to the financial statements relating to the pension plan, in part, stated:

Note J. The company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s compensation during the last four years of employment. The company’s funding policy is to contribute annually the maximum amount allowed under the tax law. Contributions are intended to provide for benefits expected to be earned in the future as well as those earned to date.

The net periodic pension expense on Barrett Corporation’s comparative income statement showed an increase between 2016 and 2017.

The corporation provided the following information related to its defined benefit pension plan at December 31, 2018:

Defined benefit obligation	$2,737,000
Fair value of plan assets	2,278,329
Accumulated OCI – Net loss (1/1/18 balance: –0–)	34,220
Other pension data
Service cost for 2018	94,000
Actual return on plan assets in 2018	130,000
Interest on January 1, 2018, defined benefit obligation	164,220
Contributions to plan in 2018	93,329
Benefits paid	140,000
Discount (interest) rate	6%

The new CEO, Patricia Wright, while reviewing the previous three year’s financial statements with the Controller, Helen Stewart, had some concerns. Given that Barrett Corporation’s work force has been stable for the last 6 years, Patricia could not understand the increase in the net periodic pension expense between 2016 and 2017. Helen explained that the net periodic pension expense consists of several elements, some of which may increase or decrease the net expense.

Prepare the note disclosing the components of pension expense for the year 2018.

Net income for 2018 is $35,000. Determine the amounts of other comprehensive income and comprehensive income for 2018.

Compute accumulated other comprehensive income reported at December 31, 2018.

Answer 1

Part (a):	Note to financial statements disclosing components of 2018 pension expense:
	Net Pension expense for 2018 is composed of the following components of pension cost:
	Pension Cost = Service Cost + Interest Cost + Actual return on plan asset + Amortisation of prior service cost + Gain/loss
	Particulars	Amount ($)
	Service Cost	$94,000
	Interest Cost	$164,220
	Pension Expense	$258,220
Part (b):	Comprehensive income for the year 2018
	Particulars	Amount ($)
	Actual Return on Plan Assets	$130,000
	Remeasurement gain on PVDBO	$118,220
	Other comprehensive income	$248,220
	Net Income	$35,000
	TOTAL Comprehensive income	$283,220
Part (c):	Unrealized gains and losses relating to a company's pension plan are commonly presented in accumulated other comprehensive income (OCI). Companies have several types of obligations for funding a pension plan. Once the gain or loss is realized, the amount is reclassified from OCI to net income. In business accounting, other comprehensive income (OCI) includes revenues, expenses, gains, and losses that have yet to be realized.
	Particulars	Amount ($)
	Accumulated OCI - Net Loss (Opening 01/01/2018)	$             (34,220)
	Gain on Plan Assets	$             130,000
	Remeasurment Gain- PVDBO	$             118,220
	Accumulated OCI - closing December 31, 2018	$             214,000

Plan Assets
Particulars	Amount ($)	Particulars	Amount ($)
To Bal. B/d (Balancing Figure)	$        2,195,000	By Bank	$            140,000
To Bank	$              93,329
To Actual Return	$            130,000	By Bal. C/d	$        2,278,329
TOTAL	$2418329		$        2,418,329
PVDBO
Particulars	Amount ($)	Particulars	Amount ($)
To Benefits Paid	$            140,000	By Bal. B/d (W.Note)	$        2,737,000
To Remeasurement gain (Balaning Figure)	$            118,220	By Current Service Cost	$              94,000
		By Interest Cost	$            164,220
To Bal. C/d	$        2,737,000
TOTAL	$        2,995,220		$        2,995,220
Working Note (1) :
Calculation of opening PVDBO
Let Opening Balance = X
6% of X = $164,220
so, X = $ 2,737,000
Notes :
Current Service Cost, Interest Cost, Actuarial Gain/loss affect expense.
Since, There is not mention in the questin actuarial gain/loss , so it is not taken any consideration.
Gain on Investment in plan assets is immidietaly transferred to OCI and it can't be deferred