B EXERCISES

(L0 4, E20-1B (Pension Expense, Journal Entries) The following information is available for the pension plan
6) of Talkspace Corporation for the year 2007.
Actual and expected return on plan assets $ 65,000
Benefits paid to retirees 163,000
Contributions (funding) 230,000
Interest/discount rate 8%
Prior service cost amortization 40,000
Projected benefit obligation, January 1, 2007 2,600,000
Service cost 250,000

Instructions
(a) Compute pension expense for the year 2007.
(b) Prepare the journal entry to record pension expense and the employer’s contribution to the pen-
sion plan in 2007.
(L0 4, E20-2B (Computation of Pension Expense) McCaw Company provides the following information
6) about its defined-benefit pension plan for the year 2007.
Service cost $ 210,000
Contribution to the plan 263,000
Prior service cost amortization 35,000
Actual and expected return on plan assets 123,000
Benefits paid 220,000
Plan assets at January 1, 2007 1,440,000
Projected benefit obligation at January 1, 2007 1,800,000
Accumulated OCI (PSC) at January 1, 2007 325,000
Interest/discount (settlement) rate 9%

Instructions
Compute the pension expense for the year 2007.
(L0 5) E20-3B (Preparation of Pension Work Sheet with Reconciliation) Using the information in E20-2B,
prepare a pension work sheet inserting January 1, 2007, balances, showing December 31, 2007, balances,
the reconciliation schedule, and the journal entry recording pension expense.
(L0 5) E20-4B (Basic Pension Worksheet) The following facts apply to the pension plan of I-Pass Corpora-
tion for the year 2007.
Plan assets, January 1, 2007 $950,000
Projected benefit obligation, January 1, 2007 950,000
Settlement rate 6%
Service cost 75,000
Contributions (funding) 10,000
Actual and expected return on plan assets 40,600
Benefits paid to retirees 42,200

Instructions
Using the preceding data, compute pension expense for the year 2007. As part of your solution, prepare
a pension worksheet that shows the journal entry for pension expense for 2007 and the year-end balances
in the related pension accounts.
(L0 6) E20-5B (Application of Years-of-Service Method) Ace Inc. has five employees participating in its
defined-benefit pension plan. Expected years of future service for these employees at the beginning of
2007 are as follows.
Future
Employee Years of Service
Jane 6
John 1
Jimmy 3
Jenny 6
Jerry 4
On January 1, 2007, the company amended its pension plan increasing its projected benefit obligation by
$210,000.

1
2 • Chapter 20 Accounting for Pensions and Postretirement Benefits

Instructions
Compute the amount of prior service cost amortization for the years 2007 through 2012 using the years-
of-service method setting up appropriate schedules.

(L0 4, E20-6B (Computation of Actual Return) Hunt Syrups Company provides the following pension plan
7) information.
Fair value of pension plan assets, January 1, 2007 $1,250,000
Fair value of pension plan assets, December 31, 2007 1,460,000
Contributions to the plan in 2007 160,000
Benefits paid retirees in 2007 206,000

Instructions
From the data above, compute the actual return on the plan assets for 2007.

(L0 5, E20-7B (Basic Pension Worksheet) The following defined pension data of Eagle Homes Corporation
6) apply to the year 2007.
Projected benefit obligation, January 1, 2007
(before amendment) $1,255,000
Plan assets, January 1, 2007 1,195,600
Pension liability, January 1, 2007 59,400
On January 1, 2007, Eagle Home Corp., through plan amendment,
grants prior service benefits having a present value of 200,000
Settlement rate 6%
Service cost 69,000
Contributions (funding) 85,000
Actual and expected return on plan assets 43,610
Benefits paid to retirees 52,000
Prior service cost amortization for 2007 25,000

Instructions
For 2007, prepare a pension worksheet for Eagle Homes that shows the journal entry for pension expense
and the year-end balances in the related pension accounts.

(L0 8) E20-8B (Application of the Corridor Approach) XTRA Inc. has beginning-of-the-year present values
for its projected benefit obligation and market-related values for its pension plan assets.
Projected Plan
Benefit Assets
Obligation Value

2007 $1,000,000 $ 900,000

2008 1,250,000 1,100,000
2009 1,600,000 1,450,000
2010 2,100,000 2,000,000
The average remaining service-life per employee in 2007 and 2008 is 8 years and in 2009 and 2010 is 11
years. The net gain or loss that occurred during each year is as follows: 2007, $165,000 gain; 2008, $40,000
gain; 2009, $30,000 loss; and 2010, $15,000 loss. (In working the solution, the gains and losses must be ag-
gregated to arrive at year-end balances.)

Instructions
Using the corridor approach, compute the amount of net gain or loss amortized and charged to pension
expense in each of the 4 years, setting up an appropriate schedule.

(L0 10) E20-9B (Disclosures: Pension Expense and Other Comprehensive Income) Ocean Air provides the
following information related to its defined-benefit pension plan.
Balances or Values at December 31, 2007
Projected benefit obligation $4,195,000
Accumulated benefit obligation 3,280,000
Vested benefit obligation 2,680,000
Fair value of plan assets 3,726,000
Accumulated OCI (PSC) 368,000
Accumulated OCI—Net loss (January 1, 2007 balance, –0–) 26,800
Pension liability 469,000
 B Exercises • 3

Other pension plan data:

Service cost for 2007 $ 94,000
Prior service cost amortization for 2007 36,800
Actual return on plan assets in 2007 122,200
Expected return on plan assets in 2007 149,000
Interest on January 1, 2007, projected benefit obligation 335,600
Contributions to plan in 2007 189,900
Benefits paid 231,000

Instructions
(a) Prepare the note disclosing the components of pension expense for the year 2007.
(b) Determine the amounts of other comprehensive income and comprehensive income for 2007. Net
income for 2007 is $400,000.
(c) Compute the amount of accumulated other comprehensive income reported at December 31, 2007.

(L0 5, E20-10B (Pension Worksheet with Reconciliation Schedule) Dade Shutters Inc. sponsors a defined-
10) benefit pension plan for its employees. On January 1, 2007, the following balances relate to this plan.
Plan assets $1,650,000
Projected benefit obligation 1,960,000
Pension liability 310,000
Prior service cost 240,000
As a result of the operation of the plan during 2007, the following additional data are provided by the
actuary.
Service cost for 2007 $133,000
Settlement rate, 6%
Actual return on plan assets in 2007 108,000
Amortization of prior service cost 24,000
Expected return on plan assets 160,000
Unexpected gain from change in projected benefit obligation,
due to change in actuarial predictions 211,000
Contributions in 2007 143,000
Benefits paid retirees in 2007 178,000

Instructions
(a) Using the data above, compute pension expense for Dade Shutter for the year 2007 by preparing
a pension worksheet.
(b) Prepare the journal entry for pension expense for 2007.

(L0 4, E20-11B (Pension Expense, Journal Entries, Statement Presentation) Western Zoo Corporation spon-
5, 9, sors a defined-benefit pension plan for its employees. The following data relate to the operation of the
10)
plan for the year 2007 in which no benefits were paid.
1. The actuarial present value of future benefits earned by employees for services rendered in 2007
amounted to $186,000.
2. The company’s funding policy requires a contribution to the pension trustee amounting to $95,000
for 2007.
3. As of January 1, 2007, the company had a projected benefit obligation of $2,400,000, an accumulated
benefit obligation of $2,000,000, and accumulated OCI (PSC) of $900,000. The fair value of pension
plan assets amounted to $1,500,000 at the beginning of the year. The market-related asset value was
equal to $1,500,000. The actual and expected return on plan assets was $90,000. The settlement rate
was 8%. No gains or losses occurred in 2007 and $50,000 of benefits was paid.
4. Amortization of prior service cost was $45,000 in 2007. Amortization of net gain or loss was not
required in 2007.

Instructions
(a) Determine the amounts of the components of pension expense that should be recognized by the
company in 2007.
(b) Prepare the journal entry or entries to record pension expense and the employer’s contribution
to the pension trustee in 2007.
(c) Indicate the amounts that would be reported on the income statement and the balance sheet for
the year 2007.

(L0 4, E20-12B (Pension Expense, Journal Entries, Statement Presentation) Vice Oil received the following
6, 7, selected information from its pension plan trustee concerning the operation of the company’s defined-
8, 9, benefit pension plan for the year ended December 31, 2007.
10)
4 • Chapter 20 Accounting for Pensions and Postretirement Benefits

January 1, December 31,

2007 2007
Projected benefit obligation $5,000,000 $5,250,000
Market-related and fair value of plan assets 1,800,000 2,100,000
Accumulated benefit obligation 4,000,000 4,100,000
Accumulated OCI (G/L)—Net gain –0– (400,000)
The service cost component of pension expense for employee services rendered in the current year
amounted to $225,000 and the amortization of prior service cost was $200,000. The company’s actual fund-
ing (contributions) of the plan in 2007 amounted to $156,000. The expected return on plan assets and the
actual rate were both 8%; the interest/discount (settlement) rate was 8%. Accumulated OCI (PSC) had a
balance of $3,200,000 on January 1, 2007. Assume no benefits paid in 2007.

Instructions
(a) Determine the amounts of the components of pension expense that should be recognized by the
company in 2007.
(b) Prepare the journal entries to record pension expense and the employer’s contribution to the pen-
sion plan in 2007.
(c) Indicate the pension-related amounts that would be reported on the income statement and the
balance sheet for Vice Oil for the year 2007.

(L0 4, E20-13B (Computation of Actual Return, Gains and Losses, Corridor Test, Prior Service Cost, and
6, 7, Pension Expense) Shiloh Acres sponsors a defined-benefit pension plan. The corporation’s actuary pro-
8, 9,
vides the following information about the plan.
10)
January 1, December 31,
2007 2007
Vested benefit obligation $500 $610
Accumulated benefit obligation 650 795
Projected benefit obligation 860 996
Plan assets (fair value) 600 740
Settlement rate and expected rate of return 10%
Pension asset/liability 260 ?
Accumulated OCI (PSC) 210 ?
Service cost for the year 2007 100
Contributions (funding in 2007) 80
Benefits paid in 2007 50
The average remaining service life per employee is 10 years.

Instructions
(a) Compute the actual return on the plan assets in 2007.
(b) Compute the amount of other comprehensive income (G/L) as of December 31, 2007. (Assume
the January 1, 2007, balance was zero.)
(c) Compute the amount of net gain or loss amortization for 2007 (corridor approach).
(d) Compute the amount of prior service cost amortization for 2007.
(e) Compute pension expense for 2007.

(L0 5) E20-14B (Worksheet for E20-13B) Using the information in E20-13B about Shiloh Acres’ defined-
benefit pension plan, prepare a 2007 pension worksheet with supplementary schedules of computations.
Prepare the journal entries at December 31, 2007, to record pension expense and related pension transac-
tions. Also, indicate the pension amounts reported in the balance sheet.

(L0 4, E20-15B (Pension Expense, Journal Entries) Ultra-Home Corporation provides the following infor-
9) mation related to its defined-benefit pension plan for 2007.

Pension liability (January 1) $ 500,000

Accumulated benefit obligation (December 31) 1,250,000
Actual and expected return on plan assets 15,000
Contributions (funding) in 2007 210,000
Fair value of plan assets (December 31) 960,000
Settlement rate 8%
Projected benefit obligation (January 1) 1,500,000
Service cost 165,000
 B Exercises • 5

Instructions
(a) Compute pension expense and prepare the journal entry to record pension expense and the em-
ployer’s contribution to the pension plan in 2007.
(b) Indicate the pension-related amounts that would be reported in the company’s income statement
and balance sheet for 2007.

(L0 8) E20-16B (Amortization of Accumulated OCI (G/L) [Corridor Approach], Pension Expense Compu-
tation) The actuary for the pension plan of Regina Company calculated the following net gains and
losses.
Incurred
during the Year (Gain) or Loss
2007 $ (660,000)
2008 250,000
2009 1,000,000
2010 400,000
Other information about the company’s pension obligation and plan assets is as follows.
Projected Benefit Plan Assets
As of January 1 Obligation (market-related asset value)
2007 $4,000,000 $3,400,000
2008 4,500,000 3,640,000
2009 4,900,000 3,900,000
2010 5,250,000 4,360,000
Regina Company has a stable labor force of 250 employees who are expected to receive benefits under
the plan. The total service-years for all participating employees are 3,500. The beginning balance of
Accumulated OCI (G/L) is zero on January 1, 2007. The market-related value and the fair value of plan
assets are the same for the 4-year period. Use the average remaining service life per employee as the basis
for amortization.

Instructions
(Round to the nearest dollar.)
Prepare a schedule which reflects the minimum amount of Accumulated OCI (G/L) amortized as a com-
ponent of net periodic pension expense for each of the years 2007, 2008, 2009, and 2010. Apply the
“corridor” approach in determining the amount to be amortized each year.

(L0 8) E20-17B (Amortization of Accumulated OCI (G/L) [Corridor Approach]) Central Innovations Com-
pany sponsors a defined-benefit pension plan for its 175 employees. The company’s actuary provided the
following information about the plan.
January 1 December 31
2007 2007 2008
Projected benefit obligation $1,650,000 $2,150,000 $2,680,000
Accumulated benefit obligation 1,400,000 1,710,000 2,165,000
Plan assets (fair value and market related
asset value) 1,350,000 1,900,000 2,350,000
Accumulated net (gain) or loss (for purposes
of the corridor calculation) –0– (150,000) (215,000)
Discount rate (current settlement rate) 10% 8%
Actual and expected asset return rate 6% 6%

The average remaining service life per employee is 7 years. The service cost component of net periodic
pension expense for employee services rendered amounted to $175,000 in 2007 and $220,000 in 2008.
Accumulated OCI (PSC) on January 1, 2007, was $525,000. No benefits have been paid.

Instructions
(Round to the nearest dollar.)
(a) Compute the amount of accumulated OCI (PSC) to be amortized as a component of net periodic
pension expense for each of the years 2007 and 2008.
(b) Prepare a schedule which reflects the amount of accumulated OCI (G/L) to be amortized as a com-
ponent of net periodic pension expense for 2007 and 2008.
(c) Determine the total amount of net periodic pension expense to be recognized by Central Inno-
vations Company in 2007 and 2008.
6 • Chapter 20 Accounting for Pensions and Postretirement Benefits

(L0 11, *E20-18B (Postretirement Benefit Expense Computation) Banc Six Corp. provides the following infor-
12) mation related to its postretirement benefits for the year 2007.
Accumulated postretirement benefit obligation at January 1, 2007 $1,195,000
Actual and expected return on plan assets 2,500
Prior service cost amortization 105,000
Discount rate 8%
Service cost 121,000

Instructions
Compute postretirement benefit expense for 2007.

(L0 11, *E20-19B (Postretirement Benefit Expense Computation) Family Favors Inc. provides the following in-
12) formation about its postretirement benefit plan for the year 2007.
Service cost $ 134,000
Prior service cost amortization 120,000
Contribution to the plan 50,000
Actual and expected return on plan assets 22,000
Benefits paid 68,000
Plan assets at January 1, 2007 265,000
Accumulated postretirement benefit
obligation at January 1, 2007 1,545,000
Accumulated OCI (PSC) at January 1, 2007 1,280,000
Discount rate 6%

Instructions
Compute the postretirement benefit expense for 2007.

(L0 11, *E20-20B (Postretirement Benefit Worksheet) Using the information in *E20-19B prepare a worksheet
12) inserting January 1, 2007, balances, showing December 31, 2007, balances, and the journal entry record-
ing postretirement benefit expense.