Question

In: Accounting

In each of the following scenarios, prepare journal entries, as necessary, or give proper accounting recognition....

In each of the following scenarios, prepare journal entries, as necessary, or give proper accounting recognition. For each, tell why you made an entry or accounting recognition or why you did not.

Identify the appropriate fund to account for construction-type special assessments.

Big City provides a defined benefit pension plan for employees of the city water department, an enterprise fund. Assume that the service cost component is $420,000, and interest on the pension liability is $380,000 for the year. Actual returns on plan assets for the year were $300,000, while the projected level of earnings on plan investments was $360,000. This difference is to be amortized over a five-year period, beginning this year. Finally, assume the City is amortizing a deferred inflow resulting from a change in plan assumptions from a prior year in the amount of $10,000 per year.

Solutions

Expert Solution

Pensions or any Post-employment benefit plans is the amount payable by any company at the end of service of the employee. This amount is paid for all the period employee has worked for our company, and hence this expense evenly belongs to whole service period and not just for the year of payment. Thus, the company needs to account for the said expense throughout the service life of the employee.

Calculation of Pension Expense:

Particulars Amount($)
Service Cost 420000
Add: Interest Costs 380000
Add: Prior Service Cost Amortisation
Less: Return on Plan Asset -300000
Less: Deferred Loss from plan asset (360000-300000) -60000
Amortisation of excess deferred loss (CY) 12000
Amortisation of excess deferred loss (PY) 10000
Net Pension Expense 462000

Journal Entries:

SR. No. General Journal Debit Credit
1 Net Pension Expense 500000
Pension Liability 500000
Service Cost + Interest Cost - Return(actual) on plan Assets
2 Amortization of amount lying in Accumulated OCI
Net Pension Expense 22000
Accumulated OCI 22000
3 Difference between Actual and expected return
Accumulated OCI 60000
Net Pension Expense 60000

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