Question

In: Accounting

Bikes-R-Us Company The company sponsors a defined benefit plan for its 200 employees. On January 1,...

Bikes-R-Us Company

The company sponsors a defined benefit plan for its 200 employees. On January 1, 2020, the company’s actuary provided the following information:

Accumulated other comprehensive loss (PSC) $240,000

Pension plan assets (fair value and market-related asset value) 450,000

Accumulated benefit obligation $480,000

Projected benefit obligation $520,000

The average remaining service period for the participating employees is 6 years. All employees are expected to receive benefits under the plan. On December 31, 2020, the actuary calculated that the present value of future benefits earned for employee services rendered in the current year amounted to $62,000; the projected benefit obligation was $620,000; fair value of pension assets was $515,000; the accumulated benefit obligation amounted to $520,000. The expected return on plan assets and the discount dfevrate on the projected benefit obligation were both 6%. The actual return on plan assets is $15,000. The company’s current year’s contribution to the pension plan amounted to $50,000. No benefits were paid during the year.

(a) Determine the components of pension expense that the company would recognize in 2020. (With only one year involved,you need not prepare a worksheet.)

1(b) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2020.

(c) Compute the amount of the 2020 increase/decrease in gains or losses and the amount to be amortized in 2020 and 2021.

(d) Indicate the pension amounts reported in the financial statement as of December 31, 2020.

Solutions

Expert Solution

ANSWER

1.

Service cost 62000
Interest on projected benefit obligation 31200 [520000*6%]
Actual return on plan assets -15000
Unexpected loss -12000 [15000-(450000*6%)]
Amortization of gain or loss -
Amortization of prior service cost 40000 [240000/6]
Pension expense 106200

2.

Account Title Debit Credit
Comprehensive income 18800
Pension expense 106200
Cash 50000
Pension asset 35000
Misc comprehensive income 40000

3.

New project benefit obligation 620000
Less: Projected benefit obligation 520000
Service cost 62000
Benefits payment 31200
Liability loss (A) (6800)
Fair value of Plan assets 515000
Less: Expected fair value 450000
Expected return 27000
Pension plan contribution 50000
Asset Loss (B) -12000
Net loss(a-b) 18800

4. Pension expense = 106200

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