Question

Howard Corp. sponsors a defined-benefit pension plan for its employees. On January 1, 2011, the following balances related to this plan.

Plan assets (market-related value) $450,000

Projected benefit obligation 600,000

Pension asset/liability 150,000 Cr. Prior service cost 75,000 OCI – Loss 65,000 As a result of the operation of the plan during 2011, the actuary provided the following additional data at December 31, 2011. Service cost for 2011 $ 75,000 Settlement rate 7% Actual return on plan assets in 2011 45,000 Expected return on plan assets in 2011 36,000 Amortization of prior service cost 20,000 Contributions in 2011 115,000 Benefits paid retirees in 2011 70,000 Average remaining service life of active employees 10 years Required: 1. Using the corridor method, calculate the amount of loss to be amortized from OCILoss account in 2011. 2. Complete the pension worksheet provided on the next page for Howard Corp. for the year 2011. Clearly distinguish debit and credit entries. (You may create your own worksheet using Excel or Word.) 3. Prepare the journal entry for pension expense in 2011.

Answer 1

Pension Woksheet for the year 2011
Particulars	Annual pension Expense($)	Cash($)	OCl- Prior Service Cost($)	OCI-Gain/Loss($)	Pension Asset/Liability ($)	Projected Benefit Obligation($)	Plan Assets($)
Balance Jan 1,2011					150,000 Cr.	600,000 Cr.	450,000 Dr.
Service cost	75,000 Dr.					75,000 Cr.
Interest cost($600,000*7%)	42,000 Dr.					42,000 Cr.
Actual return	45,000 Cr.						45,000 Dr.
Unexpected gain[(450,000*8%)-45,000]	9,000 Dr.			9000 Cr.
Amortization of prior Service Cost	20,000 Dr.		20,000 Cr.
Amortization of loss[(65,000-60,000)/10]	500 Dr.			500 Cr.
Contributions		115,000 Cr.					115,000 Dr.
Benefits						70,000 Dr.	70,000 Cr.
Journal entry for 2011	101,500 Dr.	115,000 Cr.	20,000 Cr.	9,500 Cr.	43,000 Dr.
Accumulated OCI Dec 31, 2010			75,000 Dr.	65,000 Dr.
Balance Dec 31,2011			55,000 Dr.	55,500 Dr.	107,000 Cr.	647,000 Cr.	540,000 Dr.

Journal entry for pension expense:
Particulars	Amount ($) Debit	Amount ($) Credit
Pension Expense A/c	101,500
Pension Asset/Liability A/C	43,000
Other comprehensive income (Prior Service Cost) A/C		20,000
Other Comprehensive income (Gain/Loss) A/C		9,500
Cash A/C		115,000