Question:

P20-2 (3-Year Worksheet, Journal Entries, and Reporting)

P20-3 (Pension Expense, Journal Entries, Amortization of Loss) Gottschalk Company sponsors a defined benefit plan for its 100
employees. On January 1, 2014, the company’s actuary provided the following information.

The average remaining service period for the participating employees is 10 years. All employees are expected to receive benefits under
the plan. On December 31, 2014, the actuary calculated that the present value of future benefits earned for employee services rendered
in the current year amounted to $52,000; the projected benefit obligation was $490,000; fair value of pension assets was $276,000; the
accumulated benefit obligation amounted to $365,000. The expected return on plan assets and the discount rate on the projected
benefit obligation were both 10%. The actual return on plan assets is $11,000. The company’s current year’s contribution to the
pension plan amounted to $65,000. No benefits were paid during the year.
Instructions
(a) Determine the components of pension expense that the company would recognize in 2014. (With only one year involved, you need
not prepare a worksheet.)
(b) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2014.
(c) Compute the amount of the 2014 increase/decrease in gains or losses and the amount to be amortized in 2014 and 2015.
(d) Indicate the pension amounts reported in the financial statement as of December 31, 2014.
P20-4 (Pension Expense, Journal Entries for 2 Years) Gordon Company sponsors a defined benefit pension plan. The following
information related to the pension plan is available for 2014 and 2015.
Instructions
(a) Compute pension expense for 2014 and 2015.
(b) Prepare the journal entries to record the pension expense and the company’s funding of the pension plan for both years.
P20-5 (Computation of Pension Expense, Amortization of Net Gain or Loss–Corridor Approach, Journal Entries for 3 Years) Hiatt
Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2014. The insurance company which
administers the pension plan provided the following selected information for the years 2014, 2015, and 2016.

There were no balances as of January 1, 2014, when the plan was initiated. The actual and expected return on plan assets was 10%
over the 3-year period, but the settlement rate used to discount the company’s pension obligation was 13% in 2014, 11% in 2015, and
8% in 2016. The service cost component of net periodic pension expense amounted to the following: 2014, $60,000; 2015, $85,000;
and 2016, $119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2014, $30,000 of benefits
were paid in 2015, and $18,500 of benefits were paid in 2016 (all benefits paid at end of year).
Instructions
(a) Calculate the amount of net periodic pension expense that the company would recognize in 2014, 2015, and 2016.
(b) Prepare the journal entries to record net periodic pension expense, employer’s funding contribution, and related pension amounts
for the years 2014, 2015, and 2016.
P20-6 (Computation of Prior Service Cost Amortization, Pension Expense, Journal Entries, and Net Gain or Loss) Aykroyd Inc. has
sponsored a noncontributory, defined benefit pension plan for its employees since 1991. Prior to 2014, cumulative net pension expense
recognized equaled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 2014, is as
follows.
1. The company has 200 employees. All these employees are expected to receive benefits under the plan. The average remaining
service life per employee is 12 years.
2. The projected benefit obligation amounted to $5,000,000 and the fair value of pension plan assets was $3,000,000. The market-
related asset value was also $3,000,000. Unrecognized prior service cost was $2,000,000.
On December 31, 2014, the projected benefit obligation and the accumulated benefit obligation were $4,850,000 and $4,025,000,
respectively. The fair value of the pension plan assets amounted to $4,100,000 at the end of the year. A 10% settlement rate and a 10%
expected asset return rate were used in the actuarial present value computations in the pension plan. The present value of benefits
attributed by the pension benefit formula to employee service in 2014 amounted to $200,000. The employer’s contribution to the plan
assets amounted to $775,000 in 2014. This problem assumes no payment of pension benefits.
Instructions
(a) Prepare a schedule, based on the average remaining life per employee, showing the prior service cost that would be amortized as a
component of pension expense for 2014, 2015, and 2016.
(b) Compute pension expense for the year 2014.
(c) Prepare the journal entries required to report the accounting for the company’s pension plan for 2014.
(d) Compute the amount of the 2014 increase/decrease in net gains or losses and the amount to be amortized in 2014 and 2015.
P20-7 (Pension Worksheet) Hanson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2014, the
following balances related to this plan.

As a result of the operation of the plan during 2014, the actuary provided the following additional data for 2014.

Instructions
Using the preceding data, compute pension expense for Hanson Corp. for the year 2014 by preparing a pension worksheet that shows
the journal entry for pension expense. Use the market-related asset value to compute the expected return and for corridor amortization.
P20-8 (Comprehensive 2-Year Worksheet) Lemke Company sponsors a defined benefit pension plan for its employees. The following
data relate to the operation of the plan for the years 2014 and 2015.
Instructions
(a) Prepare a pension worksheet presenting both years 2014 and 2015 and accompanying computations and amortization of the loss
(2015) using the corridor approach.
(b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year.
(c) For 2015, indicate the pension amounts reported in the financial statements.
P20-9 (Comprehensive 2-Year Worksheet) Hobbs Co. has the following defined benefit pension plan balances on January 1, 2014.

The interest (settlement) rate applicable to the plan is 10%. On January 1, 2015, the company amends its pension agreement so that
prior service costs of $600,000 are created. Other data related to the pension plan are:
Instructions
(a) Prepare a pension worksheet for the pension plan in 2014.
(b) Prepare any journal entries related to the pension plan that would be needed at December 31, 2014.
(c) Prepare a pension worksheet for 2015 and any journal entries related to the pension plan as of December 31, 2015.
(d) Indicate the pension-related amounts reported in the 2015 financial statements.
P20-10 (Pension Worksheet—Missing Amounts) Kramer Co. has prepared the following pension worksheet.
Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the
worksheet and completing the accounting tasks related to the pension plan for 2014.
Instructions
(a) Determine the missing amounts in the 2014 pension worksheet, indicating whether the amounts are debits or credits.
(b) Prepare the journal entry to record 2014 pension expense for Kramer Co.
(c) Determine the following for Kramer for 2014: (1) settlement rate used to measure the interest on the liability and (2) expected
return on plan assets.
P20-11 (Pension Worksheet) The following data relate to the operation of Kramer Co.’s pension plan in 2015. The pension worksheet
for 2014 is provided in P20-10.
For 2015, Kramer will use the same assumptions as 2014 for the expected rate of returns on plan assets. The settlement rate for 2015 is
10%.
Instructions
(a) Prepare a pension worksheet for 2015 and accompanying computations and amortization of the loss, if any, in 2015 using the
corridor approach.
(b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31.
(c) Indicate the pension amounts reported in the financial statements.
P20-12 (Pension Worksheet) Larson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2015, the
following balances related to this plan.

As a result of the operation of the plan during 2015, the actuary provided the following additional data for 2015.
Instructions
(a) Compute pension expense for Larson Corp. for the year 2015 by preparing a pension worksheet that shows the journal entry for
pension expense.
(b) Indicate the pension amounts reported in the financial statements.
* P20-13 (Postretirement Benefit Worksheet) Hollenbeck Foods Inc. sponsors a postretirement medical and dental benefit plan for its
employees. The following balances relate to this plan on January 1, 2014.

As a result of the plan’s operation during 2014, the following additional data are provided by the actuary.
Service cost is $70,000
Discount rate is 10%
Contributions to plan are $65,000
Expected return on plan assets is $10,000
Actual return on plan assets is $15,000
Benefi ts paid to employees are $44,000
Average remaining service to full eligibility: 20 years
Instructions
(a) Using the preceding data, compute the net periodic postretirement benefit cost for 2014 by preparing a worksheet that shows the
journal entry for postretirement expense and the year-end balances in the related postretirement benefit memo accounts. (Assume that
contributions and benefits are paid at the end of the year.)
(b) Prepare any journal entries related to the postretirement plan for 2014 and indicate the postretirement amounts reported in the
financial statements for 2014.
*P 20-14 (Postretirement Benefit Worksheet—2 Years) Elton Co. has the following postretirement benefit plan balances on January 1,
2014.

The interest (settlement) rate applicable to the plan is 10%. On January 1, 2015, the company amends the plan so that prior service
costs of $175,000 are created. Other data related to the plan are:

Instructions
(a) Prepare a worksheet for the postretirement plan in 2014.
(b) Prepare any journal entries related to the postretirement plan that would be needed at December 31, 2014.
(c) Prepare a worksheet for 2015 and any journal entries related to the postretirement plan as of December 31, 2015.
(d) Indicate the postretirement-benefit–related amounts reported in the 2015 financial statements.

Answer:
(a) HARRINGTON COMPANY
Pension Worksheet—2014 and 2015
General Journal Entries Memo Record

Annual OCI—Prior Projected

Pension Service Cost OCI— Pension Benefit Plan
Items Expense Cash Gain/ Asset/Liability Obligation Assets
Loss
Balance, Jan. 1, 2014 300,000 Cr. 4,500,000 Cr. 4,200,000
Dr.
Service cost 150,000 Dr. 150,000 Cr.
Interest cost* 450,000 Dr. 450,000 Cr.
Actual return 252,000 Cr. 252,000 Dr.
Contributions 240,000 Cr. 240,000 Dr.
Benefits 200,000 Dr. 200,000 Cr.
Journal entry for 2014 348,000 Dr.240,000 Cr. 0 0 108,000 Cr.
Accumulated OCI, Dec. 31,
2013
Balance, Dec. 31, 2014 408,000 Cr. 4,900,000 Cr. 4,492,000
Dr.
Additional PSC, 1/1/2015 500,000 Dr. 500,000 Cr.
Balance, Jan. 1, 2015 5,400,000 Cr.
Service cost 180,000 Dr. 180,000 Cr.
Interest cost** 540,000 Dr. 540,000 Cr.
Actual return 260,000 Cr. 260,000 Dr.
Unexpected loss*** 99,360 Cr. 99,360 Dr.
Amortization of PSC 90,000 Dr. 90,000 Cr.
Contributions 285,000 Cr. 285,000 Dr.
Benefits 280,000 Dr. 280,000 Cr.
Journal entry for 2015 450,640 Dr.285,000 Cr. 410,000 Dr. 99,360 Dr. 675,000 Cr.
Accumulated OCI, Dec. 31, 0 0
2014
Balance, Dec. 31, 2015 410,000 Dr. 99,360 Dr. 1,083,000 Cr. 5,840,000 Cr. 4,757,000
Dr.
*$450,000 = $4,500,000 X 10%.
**$540,000 = $5,400,000 X 10%.
Worksheet computations:

(a)
$25,000 = $250,000 X 10%
(b)
$2,000 = ($200,000 X 10%) – $18,000; expected return exceeds actual return.
(c)
$43,700 = $437,000 X 10%
(d)
Expected return and actual return are the same.
(e)
$48,330 = $483,300 X 10%
(f)
$2,560 = ($265,600 X 10%) – $24,000; expected return exceeds actual return.
(g)
$16,630 = ($483,300 + $26,000 + $48,330 – $21,000 – $520,000)

(b) Journal entries:

2013
Other Comprehensive Income (G/L)................................................... 2,000
Pension Expense.................................................................................. 21,000
Cash............................................................................................ 16,000
Pension Asset /Liability............................................................. 7,000

2014
Other Comprehensive Income (PSC)................................................... 105,600
Pension Expense.................................................................................. 95,100
Cash............................................................................................ 40,000
Pension Asset /Liability............................................................. 160,700

2015
Pension Expense.................................................................................. 89,370
Pension Asset /Liability....................................................................... 14,300
Other Comprehensive Income (G/L)......................................... 14,070
Other Comprehensive Income (PSC)......................................... 41,600
Cash............................................................................................ 48,000

(c) Financial Statements—2015

Income Statement
Pension expense......................................................................... $ 89,370

Comprehensive Income Statement

Net Income................................................................................. $ XXXX
Other comprehensive income (loss)
Asset gain (loss)......................................................................... $ (2,560)
Liability gain (loss).................................................................... 16,630
Prior service cost amortization................................................... 41,600 (55,670)
Comprehensive income........................................................................ $ XXXX

Balance Sheet
Liabilities
Pension liability..................................................................... $203,400
Stockholders’ equity
Accumulated other comprehensive
loss (PSC)................................................................................ $ 64,000
Accumulated other comprehensive
income (G/L)........................................................................... 12,070