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In: Accounting
Pearl Corporation is a publicly traded company that follows IFRS. On December 31, 2019, Pearl’ financial...
Pearl Corporation is a publicly traded company that follows
IFRS. On December 31, 2019, Pearl’ financial records indicated the
following information related to the company’s defined benefit
pension plan:
| Defined Benefit Obligation | $3,714,000 | |
| Pension Plan Assets | 3,714,000 |
On July 1, 2020, Pearl acquired the operations of Trap Ltd. As one
of the conditions of the purchase, Pearl agreed that Trap’s
employees would be included in Pearl’s defined benefit pension
plan, and would be granted credit for the past service of Trap’s
employees. The actuary estimated the value of the prior service
amount granted on July 1, 2020 to be $193,000.
Pearl’ actuary provided the following information on December 31,
2020:
| Current year service cost | $921,000 | |
| Employer contributions for the year | 899,000 | |
| Benefits paid to retirees | 318,000 | |
| Actuarial increase in pension obligations | 48,000 | |
| Discount rate | 6% | |
| Actual return on assets | 4% |
Prepare a pension worksheet for Pearl Corporation for the year
ending December 31, 2020.
Prepare the journal entry to record the pension expense for
2020.
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Expert Solution
| Year 2020 | |||||
| 1 | Pension Expense | $ 9,21,000.00 | |||
| 2 | Journal entry | ||||
| Account title & Explaination | 2020 | ||||
| Debit | Credit | ||||
| Annual pension expense | 9,21,000.00 | ||||
| OCI-Prior Service Cost | 1,93,000.00 | ||||
| OCI-(Gain/Loss) | 1,22,280.00 | ||||
| Cash | 8,99,000.00 | ||||
| Net Pension Asset/liability | 3,37,280.00 | ||||
| (To record pension expense and remeasurement loss recorded) | |||||
| 3 | Plan Asset | 8,99,000 | |||
| Cash | 8,99,000 | ||||
| (To record the contribution made) | |||||
| Net Pension Asset/liability | 3,18,000 | ||||
| Cash | 3,18,000 | ||||
| (To record benefit paid) | |||||
| 4 | Net Pension Asset/(liability) | $ (3,37,280) | |||
| 5 | Projected benefit obligation | $ (47,80,840) | |||
| Plan Asset | $ 44,43,560 | ||||
| Plan Surplus/(Deficit) | $ (3,37,280) | ||||
| Pension Worksheet 2020 | |||||||||||
| Items | Annual Pension Expense | Cash | OCI-Prior Service Cost | OCI-Gain/(Loss) | Pension Asset/liability | Projected benefit obligation | Plan Asset | ||||
| Balance, Jan 1,2020 | $ - | $ - | $ - | $ - | $ - | $ (37,14,000) | $ 37,14,000 | ||||
| Past Service Cost created | $ - | $ - | $ 1,93,000 | $ - | $ - | $ (1,93,000) | $ - | ||||
| Service Cost | $ 9,21,000 | $ - | $ - | $ - | $ (9,21,000) | $ - | |||||
| Interest Cost | $ 2,22,840 | $ - | $ - | $ - | $ (2,22,840) | $ - | Actual return - Expected return | Gain/(loss) | |||
| Actual return | $ (1,48,560) | $ - | $ - | $ - | $ - | $ 1,48,560 | $ 1,48,560.00 | $ 2,22,840.00 | $ (74,280.00) | ||
| Unexpected gain/ loss | $ (74,280) | $ - | $ (74,280) | $ - | $ - | $ - | 4% | 6% | |||
| Amortisation of PSC | $ - | $ - | $ - | $ - | $ - | $ - | |||||
| Amortisation of OCI-Gain/loss | $ - | $ - | $ - | $ - | $ - | $ - | |||||
| Liability (increases)/decreases | $ - | $ - | $ (48,000) | $ - | $ (48,000) | 10% of higher of PBO or Plan asset | $ 3,71,400.00 | ||||
| Contributions | $ - | $ (8,99,000) | $ - | $ - | $ - | $ 8,99,000 | OCI-Gain/(Loss) | $ - | |||
| Benefits | $ - | $ - | $ - | $ - | $ 3,18,000 | $ (3,18,000) | Amount to be amortised | $ - | |||
| $ - | $ - |
$
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