Ch. 19

Intermediate Accounting, 2e Solutions Manual
BRIEF EXERCISES
Hanlon, Hodder, Nelson, Roulstone, Dragoo Chapter 19
BE 19-21. December 31, 2020—To fund defined contribution plan

Pension Expense 4,500
Cash (.03 x $150,000) 4,500
BE 19-22. 1. VBO: 2.5% x 2 years x $90,000 x 15% $ 675

2. ABO: 2.5% x 2 years x $90,000 4,500
3. PBO: 2.5% x 2 years x $175,000 8,750
BE 19-23. Reconciliation of PBO, December 31, 2021

PBO, beginning $ 175,000
Service cost 22,500
Interest cost (.07 x $175,000) 12,250
Benefit payments x
PBO, ending $ 187,500
Benefit payments $ 22,250

PBO, beginning x
Service cost 50,000
Interest cost 1,875
Benefit payments (4,800)
PBO $ 250,000

Service cost 155,000
Interest cost ($840,000 x .05) 42,000
Actuarial loss on PBO x
Actuarial loss on PBO $ 64,000
BE 19-26. Reconciliation of Plan Assets, December 31, 2021

Plan assets, beginning $ 150,000
Actual return 9,000
Employer contributions x
Plan assets, ending $ 168,750
Employer contributions $ 12,750
BE 19-27. Reconciliation of Plan Assets, December 31, 2021

Plan assets, beginning $ xx
Actual return 8,120
Employer contributions 15,000
a Plan asset, beginning balance $ 268,900

b Rate of return ($8,120 / $268,900) 3.0%
BE 19-28. Funded Status, December 31, 2020

Projected benefit obligation $ 312,000
Plan assets at fair value 300,000
Underfunded status $ (12,000)
©Cambridge Business Publishers Brief Ex. pg.1

BRIEF EXERCISES
BE 19-29. Calculation of pension expense

Service cost $ 160,000
Interest cost 50,000
Expected return on plan assets (35,000)
Amortization of prior service costs 5,000
Total pension expense $ 180,000
BE 19-30. Prior service cost (increase PBO, decrease OCI) $ 120,000

Average service life 10
Prior service cost amortization (increase pension expense*) $ 12,000

*Note: amount will also increase OCI.
BE 19-31. Calculation of amortization of pension gain/loss

Corridor calculation
10% of the greater of the PBO or plan assets, beginning balance
(.10 x $3,750,000) $ 375,000
Amortization calculation
Accumulated Pension Gain/Loss - Corridor ($637,500 - $375,000) $ 262,500
Average remaining service period (10 years) 10
Amortization of gain on PBO $ 26,250
BE 19-32. December 31, 2020—To record pension expense

Pension Expense ($12,100 - $2,000) 10,100
Plan Assets 2,000
Projected Benefit Obligation ($10,000 + $2,100) 12,100
2020—To record funding of plan assets

Plan Assets 1,800
Cash 1,800
BE 19-33. December 31, 2020—To record pension expense

Plan Assets 18,000
OCI—Prior Service Cost 1,800

Plan Assets 45,000
Cash 45,000
2020—To record benefits paid

Projected Benefit Obligation 15,000
Plan Assets 15,000
BE 19-34. Funded Status, December 31, 2020

Net pension liability $ (10,000)

BRIEF EXERCISES
BE 19-35. Other comprehensive income (loss)

Actuarial gain on PBO $ 500
Unexpected loss on return on plan assets (80)
Other comprehensive income (loss) $ 420
Comprehensive income (loss)

Net income $ 3,800
Other comprehensive income (loss) 420
Comprehensive income (loss) $ 4,220
Accumulated other comprehensive income

Accumulated other comprehensive income (loss), December 31, 2020 $ (6,000)
Other comprehensive income (loss) 420
BE 19-36. Pharrell Inc.

Balance Sheet
December 31, 2020
Assets $ ##
Liabilities
Net pension liability 250
Stockholders' Equity
Accumulated other comprehensive income (loss) (400)
Pharrell Inc.
Income Statement
For the Year Ended December 31, 2020
Operating expenses 1,500
Nonoperating expenses
Other components of net periodic pension costs 1,000
Pharrell Inc.
Statement of Comprehensive Income
Net income $ ##
Other comprehensive income (loss)
Unexpected loss on plan assets (200)
BE 19-37. Pension Worksheet Reported Net in Financial Statements Balance Sheet

Plan Net Pension Cash
Assets PBO Asset/Liability Outflow
Balance, January 1, 2020 $ 5,000 $ (4,800) $ 200
Service cost (1,000) (1,000)
Interest cost (0.09 x $4,800) (432) (432)
Expected return (0.10 x $5,000) 500 500
Contributions to fund 210 210 $ (210)
Benefit payments (150) 150 - -
Balance, December 31, 2020 $ 5,560 $ (6,082) $ (522)

BRIEF EXERCISES
Income Statement
Pension
Expense
$ 1,000
432
(500)
-
$ 932

EXERCISES Hanlon, Hodder, Nelson, Roulstone, Dragoo Chapter 19
E 19-38. Recording Entries for Defined Contribution Plan
2020—To fund defined contribution plan

Cash (.03 x $880,000) 26,400
December 31, 2020—To fund defined contribution plan

Accrued Pension Liability 15,000
©Cambridge Business Publishers

E 19-39. Computing ABO, PBO
a. Compute the PBO on December 31, 2019, if Josie’s current salary is $30,000.
Pension benefit: (number of years worked x final salary) / 25

(10 years x $100,000)/ 25 $ 40,000
PV(0.1,10,-40000,0) 245,783
PV(0.1,20,0,-245783) $ 36,534
b. Compute the ABO on December 31, 2019, if Josie's current salary is $30,000.
Pension benefit: (number of years worked x current salary) / 25

(10 years x $30,000) /25 $ 12,000
PV(0.1,10,12000,0) 73,735
PV(0.1,20,0,-73735) $ 10,960

E 19-40. Analyzing Changes in PBO
December 31, 2020—PBO Calculation

Service cost x
Prior service cost adjustment 8,000
Actuarial gain on PBO (24,000)

E 19-41. Determining Amounts Affecting Pension Expense, PBO, and Plan Assets
(1) Plan Asset (2) PBO (3) Pension

Reconciliation Reconciliation Expense
a. December 31, 2020, projected benefit obligation balance x
b. December 31, 2020, pension plan asset balance x
c. Loss (gain) related to changes in actuarial assumptions x
d. Cash funding by the employer x
e. Prior service cost amendment x
f. Net periodic pension expense x
g. Actual return on plan assets x
h. Interest cost on PBO x x
i. Amortization of prior service cost x
j. January 1, 2020, pension plan asset balance x
k. Pension benefits paid to retirees x x
l. January 1, 2020, projected benefit obligation balance x
m. Expected return on plan assets x
n. Amortization of pension gain/loss x
o. Service cost x x

E 19-42. Analyzing Changes in Plan Assets
December 31, 2020—Plan Asset Calculation

Actual return on plan assets (.06 x $130,000) 7,800
Employer contributions $ 15,000

E 19-43. Analyzing Changes in Plan Assets and PBO
December 31, 2020—Plan Asset Calculation

Actual return on plan assets 300
Employer contributions 450
Benefit payments x
a Benefits paid $ (125)
December 31, 2020—PBO Calculation

Service cost 500
Interest cost 400
Actuarial gain/loss on PBO x
Benefit payments (125)
PBO, ending ($5,625 + $200) $ 5,825
b Loss on PBO $ 50

E 19-44. Calculating Pension Expense
Calculation of pension expense

Interest cost ($194,000 x .10) 19,400
Amortization of net pension loss 2,222
Net pension expense $ 74,342

E 19-45. Determining and Reporting Funded Status
Plan #1: Funded Status, December 31, 2020


Overfunded status $ 60,000

Brittany Inc.
Balance Sheet
December 31, 2020
Noncurrent assets
Net pension asset $ 70,000
Noncurrent liabilities
Net pension liability $ 20,000

EXERCISES
E 19-46. Analyzing Pension Gain/Loss
a. Determine the amortization of the pension gain/loss for 2020, using (1) corridor approach.
Calculation of amortization of pension gain/loss

Corridor calculation:
10% of the greater of the PBO or plan assets, beginning
(.10 x $300,000) $ 30,000
Amortization calculation:
Accumulated Pension Gain/Loss - Corridor ($12,000 - $30,000) -
Average service period (20 years) $ 20
Amortization of gain on PBO -
Determine the amortization of the unrecognized gain for 2020, using (2) straight-line amortization.

Accumulated OCI—Pension Gain/Loss, January 1, 2020 $ (12,000)
Average service period (20 years) 20
Amortization of gain on PBO $ (600)
b. Determine the Accumulated Pension Gain/Loss at January 1, 2021, assuming straight-line amortization.
Accumulated OCI—Pension Gain/Loss

Amortization of gain 2020 600
Pension loss, 2020 4,200
Expected - Actual return or $28,000 (.10 x $280,000) - $20,000 8,000

Accumulated OCI—Pension Gain/Loss, January 1, 2021 $ 800
Plan Asset Reconciliation, December 31, 2020

Plan assets, January 1, 2020 $ 280,000
Actual return x
Plan assets, December 31, 2020 $ 295,000
x = 295,000-280,000-10,000+15,000 $ 20,000
©Cambridge Business Publishers E19-46. pg.13

EXERCISES
c. Determine impact on pension expense based upon information provided.

What information is missing in order to calculate total pension expense?

Service cost not given
Interest cost not given
Expected return on plan assets (.1 x $280,000) (28,000)
Amortization of prior service costs not given
Amortization of net gain on PBO (600)
Total pension expense $ -
Service cost, interest cost and any amortization of prior service cost are not provided in the data.
d. Amortization of pension gain/loss for 2021, assuming straight-line amortization.
Accumulated OCI—Pension Gain/Loss, January 1, 2021 $ 800
Amortization of loss on PBO $ 40

EXERCISES

EXERCISES
E 19-47. Determining Funded Status, Recording Pension Expense, Preparing Worksheet
a. In its December 31, 2020, balance sheet, Rico should report what amount of net pension asset/liability?
Funded Status, December 31, 2020

b. In its December 31, 2021, balance sheet, Rico should report what amount of net pension asset/liability?

Actual return 9,000
Benefit payments -
PBO Reconciliation, December 31, 2021

PBO, January 1, 2021 $ 75,000
Service cost 82,500
Interest cost 7,500
Prior service cost adjustment -
Actuarial gain/loss on PBO -
Benefit payments -
PBO, December 31, 2021 $ 165,000

c. Prepare the journal entry to record pension expense and plan funding for 2021.

Interest cost 7,500
Amortization of prior service costs -
Amortization of net gain or loss -
$ 81,000
December 31, 2021—To record pension expense

Plan Assets 9,000
December 31, 2021—To record funding of plan assets

Plan Assets 92,500
Cash 92,500

EXERCISES
d. Create a worksheet to summarize the pension data required at the end of 2021.
Rico Corporation Reported on Reported on

Reported Net in Financial Statements Balance Sheet Income Statement
Plan Net Pension Cash
Assets PBO Asset/Liability Outflow
Balance, January 1, 2021 $ 85,000 $ (75,000) $ 10,000
Service cost (82,500) (82,500)
Interest cost (7,500) (7,500)
Expected return on plan assets 9,000 9,000
Contributions to fund 92,500 92,500 $ (92,500)
Balance, December 31, 2021 $ 186,500 $ (165,000) $ 21,500

EXERCISES
Reported on
Income Statement
Pension
Expense
$ 82,500
7,500
(9,000)
$ 81,000

E 19-48. Computing Amortization of Pension Gain/Loss
a. Compute amortization for 2020 using the corridor approach.
(.10 x $50,000) $ 5,000
Accumulated OCI—Pension Gain/Loss - Corridor ($6,000 - $5,000) $ 1,000
Amortization of gain on PBO $ 50
b. Compute Accumulated OCI—Pension Gain/Loss on December 31, 2020.

Amortization of Accumulated OCI—Pension Gain 50
Unexpected loss on plan assets ($10,000 - $8,000) 2,000
Accumulated OCI—Pension Gain/Loss, December 31, 2020 $ (7,950)
c. Compute amortization for 2021 using the corridor approach.
(.10 x $56,000) $ 5,600
Amortization of gain on PBO $ 118
d. Compute amortization for 2020 and 2021 using the straight-line method.
Amortization of Accumulated OCI—Pension Gain/Loss, 2020 ($6,000/20) $ 300

Amortization of Accumulated OCI—Pension Gain/Loss ($6,000/20) 300


Accumulated OCI—Pension Gain/Loss, December 31, 2020 $ (7,700)
Amortization of Accumulated OCI—Pension Gain/Loss, 2021 ($7,700/20) 385

E19-49. Computing Pension Expense, Gain/Loss Amortization, PBO & Plan Asset Balances
a. Compute pension expense for 2020.

Interest cost (($20,000 + $10,000 - $3,000) x .08) 2,160
Amortization of prior service costs ($10,000 / 10) 1,000
Amortization of net gain* (200)
$ 10,360
*Calculation of amortization of pension gain/loss

($3,000 / 15) $ 200
Company is amortizing full gain and not using the corridor approach.
b. Compute PBO at December 31, 2020.

PBO, January 1, 2020 $ 27,000
Service cost 9,000
Interest cost 2,160
PBO, December 31, 2020 $ 33,160
c. Compute fair value of plan assets at December 31, 2020.

Fair value of plan assets, January 1, 2020 $ 16,000
Actual return 2,000
Fair value of plan assets, December 31, 2020 $ 17,000

E19-50. Computing Amortization of Pension Gain/Loss
Year PBO Plan Assets

2020 $ 120,000 $ 95,000
2021 194,000 116,000
2022 221,400 219,200
2023 248,000 233,000
a.
Beginning Balance Current Year
Accumulated OCI OCI
Year Pension Gain/Loss Pension Gain/Loss Corridor Amortization
2020 $ - $ 50,000 $ 12,000 $ -
2021 50,000 20,000 19,400 3,060
2022 66,940 (12,000) 22,140 4,978
2023 49,962 8,000 24,800 2,796

b.
Ending Balance
Accumulated OCI
Pension Gain/Loss
$ 50,000
66,940
49,962
55,166

EXERCISES
E 19-51. Recording Pension Expense, Gains/losses, Funding, Benefit Payments and Preparing Worksheet
a. Compute net pension expense for 2020 assuming that the 2019 losses (gains)
are amortized for 2020 over a 15-year average remaining service period.

Interest cost ($30,000 x .10) 3,000
Amortization of net gain ($1,500 / 15) (100)
b. Prepare the 2020 pension expense and funding entry for Amex Company.

Plan Assets 2,500
OCI—Pension Gain/Loss 100
December 31, 2020—To record deferral of actuarial gain on PBO

OCI—Pension Gain/Loss 2,000

Plan Assets 15,000
Cash 15,000

Projected Benefit Obligation 500
Plan Assets 500
c. Compute the underfunded (overfunded) balance as of December 31, 2020.

Amex Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Plan Net Pension Prior Pension Cash Pension Prior Pension
Assets PBO Asset/Liability Service Cost Gain/Loss Outflow Expense Service Cost Gain/Loss
Balance, January 1, 2020 $ 27,500 $ (30,000) $ (2,500) $ - $ (1,500)
Service cost (10,000) (10,000) $ 10,000
Interest cost (3,000) (3,000) 3,000
Expected return 2,500 2,500 (2,500)
Defer actuarial gain on PBO 2,000 2,000 (2,000) $ (2,000)
Amortization of pension gain/loss 100 (100) 100
Benefit payments (500) 500
Balance, December 31, 2020 $ 44,500 $ (40,500) $ 4,000 $ - $ (3,400) $ 10,400 $ - $ (1,900)

EXERCISES
E 19-52. Recording and Reporting Pension Accounts, Worksheet
a. Compute 2020 net periodic pension expense.

Interest cost 240
Expected return on plan assets (.07 x $2,400)* (168)
*Actual return of $168 = expected return of $168
b. Provide the 2020 reconciliations of plan assets and PBO.
Plan Assets Reconciliation, December 31, 2020

Actual return 168

PBO, January 1, 2020 $ 3,000
Service cost 1,200
Interest cost 240
PBO, December 31, 2020 $ 4,040
c. Provide the 2020 entries to record pension expense, funding, and benefit payments.

Plan Assets 168

Plan Assets 1,024
Cash 1,024

Plan Assets 400
d. Compute the funded status at the beginning and end of 2020.
Funded Status, January 1, 2020

Underfunded status $ (600)

Underfunded status $ (848)

EXERCISES
e. Indicate the amounts that would appear on the income statement and balance sheet in 2020.
Lexxus Company
Balance Sheet
December 31, 2020
Assets
Liabilities
Net pension liability $ (848)
Stockholders' Equity
Income Statement
For the year ended December 31, 2020
Revenue
Operating expenses 1,200
Nonoperating expenses
Other components of net periodic pension costs 72
f. Create a worksheet to summarize the pension data required at the end of 2020.
Lexxus Company Reported Net in Financial Statements Balance Sheet Income Statement
Plan Net Pension Cash Pension

Assets PBO Asset/Liability Outflow Expense
Balance, January 1, 2020 $ 2,400 $ (3,000) $ (600)
Service cost (1,200) (1,200) $ 1,200
Interest cost (240) (240) 240
Expected return 168 168 (168)
Balance, December 31, 2020 $ 3,192 $ (4,040) $ (848) $ 1,272

EXERCISES Intermediate Accounting, 2e Solutions Manual
E19-53. Preparing Pension Journal Entries and Pension Worksheet
a. Provide the computation for interest cost.
Interest expense (($45,000 + $5,000) x .08) $ 4,000

*The beginning of year PBO is adjusted for the prior service cost plan amendment.
b. Compute net pension expense. Assume that prior service cost will be
amortized over a 10-year average remaining service period.

Interest cost ($50,000 x .08) 4,000
Amortization of prior service costs ($5,000 / 10) 500
Amortization of pension gain/loss -
c. Provide the 2020 entries.
January 1, 2020—To record deferral of prior service cost


Plan Assets 2,500
OCI—Prior Service Costs 500

Plan Assets 25,000
Cash 25,000
d. Provide the same entry assuming cash funding from the employer of $35,500 and no other changes.
Same entries as in part (c ) except the following entry for funding:

December 31, 2020—To record funding of plan assets
Plan Assets 35,500
Cash 35,500
e. Determine the plan's fund balance for (c) and (d), at December 31, 2020.


f. Create a worksheet to summarize the pension data required at the end of 2020.
Mac Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Balance, January 1, 2020 $ 52,500 $ (45,000) $ 7,500
Prior service cost amendment (5,000) (5,000) $ 5,000 $ 5,000
Service cost (32,500) (32,500) $ 32,500
Interest cost (4,000) (4,000) 4,000
Prior service cost amortization (500) 500 (500)
Balance, December 31, 2020 $ 80,000 $ (86,500) $ (6,500) $ 4,500 $ - $ 34,500 $ 4,500 $ -

E 19-54. Preparing Pension Entries and Pension Worksheet
a. Provide the entries to record the 2020 pension expense.

Interest cost ($30,000 x .08) 2,400
Amortization of net gain ($5,000 / 15) (333)
$ 8,067

Plan Assets 2,000
December 31, 2020—To record deferral of unexpected gain on plan assets

Plan Assets (Expected - Actual return or $2,000 - $3,000) 1,000

Plan Assets 9,000
Cash 9,000
b. Indicate the effect on the income statement for the year ended December 31, 2020.
Income Statement
For the year ended December 31, 2020
Revenue
Operating expense (service cost component) $ 7,000
Nonoperating expense
Other components of net periodic pension cost $ 1,067
c. Indicate the effect on the balance sheet as of December 31, 2020.
Assets
Plan assets increase ($2,000 + $1,000 + $9,000) $ 12,000
Cash decrease (9,000)
Assets net increase $ 3,000
Liabilities
PBO increase $ 9,400
Equity
Retained earnings decrease (pension expense) $ (8,067)
AOCI increase ($1,000 + $1,000 - $333) 1,667
Equity net decrease $ (6,400)
ISPN Inc. Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Balance, January 1, 2020 $ 30,000 $ (30,000) $ - $ 8,000 $ (5,000)
Service cost (7,000) (7,000) $ 7,000
Interest cost (2,400) (2,400) 2,400
Unexpected gain on plan assets 1,000 1,000 (1,000) $ (1,000)
Prior service cost amortization (1,000) 1,000 $ (1,000)
Pension gain/loss amortization 333 (333) 333
Balance, December 31, 2020 $ 42,000 $ (39,400) $ 2,600 $ 7,000 $ (5,667) $ 8,067 $ (1,000) $ (667)

a. Prepare pension worksheet.
Rollo Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Balance, January 1, 2020 $ 160,000 $ (150,000) $ 10,000 $ 20,000 $ (2,000)
Service cost (40,000) (40,000) $ 40,000
Interest cost (15,000) (15,000) 15,000
Expected return 16,000 16,000 (16,000)
Actuarial gain on PBO 400 400 (400) $ (400)
Prior service cost amortization ($20,000 / 10) (2,000) 2,000 $ (2,000)
Benefit payments (42,000) 42,000
Balance, December 31, 2020 $ 164,000 $ (162,600) $ 1,400 $ 18,000 $ (2,400) $ 41,000 $ (2,000) $ (400)
b. Prepare pension entries.

Plan Assets 16,000
OCI—Prior Service Costs 2,000
Note: Gain of $2,000 is below the corridor of $16,000 (.10 x $160,000), thus no amortization in 2020.


Plan Assets 30,000
Cash 30,000

Plan Assets 42,000

EXERCISES
a. Prepare the December 31, 2019, presentation of funded status.

b. Prepare the entries to record the 2020 pension expense

Interest cost ($700,000 x .08) 56,000
Amortization of net gain* (9,000)
$ 69,000
(.10 x $700,000) $ 70,000
Accumulated pension gain/loss - Corridor ($160,000 - $70,000) $ 90,000
* Amortization of gain on PBO (9,000)

Plan Assets 50,000
OCI—Prior Service Costs 12,000
December 31, 2020—To record deferral of unexpected gain on plan assets

Plan Assets (Expected - Actual return or $50,000 - $55,000) 5,000
December 31, 2020—To record deferral of actuarial loss on PBO


Plan Assets 88,000
Cash 88,000
c. The December 31, 2020, presentation of funded status.


Actual return 55,000
Benefit payments -

PBO, January 1, 2020 $ 700,000
Service cost 60,000
Actuarial loss on PBO 40,000
Benefit payments -
PBO, December 31, 2020 $ 856,000
d. Determine whether amortization of net unrecognized gain or loss is required for 2021.
(.10 x $856,000) $ 85,600
Accumulated pension gain/loss - Corridor ($116,000 - $85,600) $ 30,400
Amortization of gain on PBO $ (3,040)
Accumulated Pension Gain/Loss on December 31, 2020

-$160,000 + $9,000 + $40,000 - $5,000 $ (116,000)

EXERCISES
e. Prepare a pension worksheet for 2020.
Jenkins Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Plan Net Pension Prior Pension Cash Pension Prior
Assets PBO Asset/Liability Service Cost Gain/Loss Outflow Expense Service Cost
Balance, January 1, 2020 $ 500,000 $ (700,000) $ (200,000) $ 120,000 $ (160,000)
Service cost (60,000) (60,000) $ 60,000
Interest cost (56,000) (56,000) 56,000
Expected return 50,000 50,000 (50,000)
Unexpected gain on plan assets 5,000 5,000 (5,000)
Actuarial loss on PBO (40,000) (40,000) 40,000
Prior service cost amortization ($120,000 / 10) (12,000) 12,000 $ (12,000)
Gain on PBO - Amortization 9,000 (9,000)
Benefit payments - -
Balance, December 31, 2020 $ 643,000 $ (856,000) $ (213,000) $ 108,000 $ (116,000) $ 69,000 $ (12,000)

EXERCISES
eported in Comprehensive Income

OCI
Pension
Gain/Loss
$ (5,000)
40,000
9,000
$ 44,000

E19-57. Preparing Pension Entries and Pension Worksheet
Lakers Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Balance, January 1, 2020 $ 400 $ (600) $ (200) $ 72 $ 8
Service cost (60) (60) $ 60
Expected return (.10 x $400) 40 40 (40)
Unexpected loss on assets (4) (4) 4 $ 4
Actuarial loss on PBO (20) (20) 20 20
Prior service cost amortization ($72 / 10) (7) 7 $ (7)
Balance, December 31, 2020 $ 356 $ (528) $ (172) $ 65 $ 32 $ 75 $ (7) $ 24

Pension Expense 75
Plan Assets 40
OCI—Prior Service Cost 7
Note: Loss of $8 is below the corridor of $60 (.10 x $600), thus no amortization in 2020.
December 31, 2020—To record deferral of unexpected loss on plan assets

Plan Assets (Expected - Actual Return or $40 ($400 x .10) - $36) 4


Plan Assets 120
Cash 120

Plan Assets 200

E19-58. Determining Reporting Amounts and Preparing Disclosures
a. Prepare the disclosure of pension expense.
The pre-tax expense for our defined benefit pension was as follows:
2020
Interest cost 6,000
Amortization of prior service costs 500
b. Prepare the portion of the pension disclosure showing the reconciliation

of the pension benefit obligation, plan assets, and funded balance.
The year-end status of this plan was as follows:

Change in pension benefit obligation
Pension benefit obligation, January 1, 2020 $ 75,000
Service cost 49,000
Interest cost 6,000
Pension benefit obligation, December 31, 2020 $ 125,000
Change in plan assets

Actual return on plan assets 4,725
Company contributions 37,500
Plan participants contributions 10,000
Funded status at December 31 $ 975
c. Prepare the comprehensive income statement.
Klarbrun Inc.
Comprehensive Income
Revenue $ xx
Operating expense (49,000)
Other operating expense
Other components of net periodic pension cost (1,775)
Net Income 500,000
Other comprehensive income (loss)
Prior service cost amortization 500
Total comprehensive income (loss) $ 500,500
d. Determine the ending balance in accumulated other comprehensive loss.

Accumulated other comprehensive income (loss), January 1, 2020 $ (49,500)

Prior service cost amortization 500

E 19-59. Defining Pension Terminology
1 Projected benefit obligation k

2 Expected return on plan assets n
3 Amortization of gains and losses g
4 Pension plan assets m
5 Pension expense a
6 Fair value (of plan assets) j
7 Amortization of prior service costs b
8 Net pension asset h
9 Accumulated benefit obligation c
10 Interest cost l
11 Discount rate e
12 Service cost (pensions) d
13 Vested benefit obligation f
14 Actual return on plan assets i

E 19-60. Determining How Pension Items Affect Accounts
a Service cost 1, 3
b Expected return on plan assets 2, 5
c Excess of expected return over actual return on plan assets 6, 8
d Excess of actual return over expected return on plan assets 5, 7
e Amortization of prior service cost 1, 7
f Actuarial loss on PBO (deferral) 8, 3
g Amendment to prior service cost (increase benefits) 3, 8
h Payment of retirement benefits 4, 6
i Actuarial gain on PBO (deferral) 4, 7
l Employer contributions 5 ,9
k Interest cost on PBO 1, 3
l Amortization of actuarial pension loss 1, 7

PROBLEMS Hanlon, Hodder, Nelson, Roulstone, Dragoo Chapter 19
P 19-61. Calculating ABO and PBO Balances
a. Compute projected benefit obligation at December 31, 2020.

(1 x $100,000) /25 $ 4,000
PV(0.1,10,-4000,0) 24,578
PV(0.1,19,0,-C10) 4,019
b. Compute accumulated benefit obligation at December 31, 2020.

(1 x $30,000)/ 25 $ 1,200
PV(0.1,10,-1200,0) 7,373
PV(0.1,19,0,-C18) 1,206
c. Compute projected benefit obligation at December 31, 2021.

(2 x $100,000) /25 $ 8,000
PV(0.1,10,-8000,0) 49,157
PV(0.1,18,0,-C26) 8,841
d. Compute accumulated benefit obligation at December 31, 2021.

(2 x $30,000) /25 $ 2,400
PV(0.1,10,-2400,0) 14,747
PV(0.1,18,0,-C34) 2,652

PROBLEMS Intermediate Accounting, 2e Solutions Manual
P 19-62. Calculating ABO and PBO Balances

a.
1. Compute PBO on January 1, 2020.
Pension benefit:2% (number of years of service x annual salary at retirement)

2% x 1 x $150,000 $ 3,000
PV(0.1,10,-3000,0) 18,434
PV(0.1,24,0,-18434) 1,871
2. Compute ABO on January 1, 2020.

2% x 1 x $45,000 $ 900
PV(0.1,10,-900,0) 5,530
PV(0.1,24,0,-5530) 561

2% x 2 x $150,000 $ 6,000
PV(0.1,10,-6000,0) 36,867
PV(0.1,23,0,-36867) 4,117
4. Compute ABO on January 1, 2021.

2% x 2 x $47,250 $ 1,890
PV(0.1,10,-1890,0) 11,613
PV(0.1,23,0,-11613) 1,297
b.

2% x 1 x $150,000 $ 3,000
PV(0.08,10,3000,0) 20,130
PV(0.08,24,0,C10) 3,175

2% x 1 x $325,000 $ 6,500
PV(0.1,10,-6500,0) 39,940
PV(0.1,24,0,-39940) 4,055

2% x 1 x $150,000 $ 3,000

PV(0.1,20,-3000,0) 25,541
PV(0.1,24,0,-25541) 2,593

PROBLEMS
P 19-63. Computing Pension Expense, Two Years
a. Compute pension expense for 2020.
Calculation of pension expense for 2020

Interest cost ($60,000 + $12,000) x .10) 7,200
Amortization of net loss (see calculation below) 400
Supporting calculations:
(.10 x $72,000) $ 7,200
b. Compute pension expense for 2021.
1 Plan Asset Reconciliation, January 1, 2021

Actual return 1,800
Benefit payments -
2 PBO Reconciliation, January 1, 2021

PBO, January 1, 2020 $ 72,000
Service cost 12,000
Interest cost 7,200
Benefit payments -
PBO, January 1, 2021 $ 91,200
3 Accumulated OCI—Pension gain/loss Reconciliation, January 1, 2021

Accumulated OCI—Pension Gain/Loss, January 1, 2020 $ 12,000
Amortization, 2020 (400)
(.10 x $91,200) $ 9,120
*Amortization calculation
Accumulated OCI—Pension Gain/Loss - corridor (($12,680) - $9,120) $ 3,560
4 Calculation of pension expense for 2021

Interest cost ($91,200 x .10) 9,120
Amortization of net gain/loss* 297

PROBLEMS

PROBLEMS
P19-64. Calculating PBO, Plan Assets, and Underfunding or Overfunding
a. How much did PBO increase during 2020?
Change in PBO Balance

Balance, January 1, 2020 $ 164,000
Balance, December 31, 2020 214,000
Increase in PBO $ 50,000
Five possible causes for the change in PBO

1. Increase: Service cost
2. Decrease: Pension benefits paid to retirees
3. Increase or decrease: Losses and gains on changes in actuarial assumptions
4. Increase: Interest cost
5. Increase: Prior service cost
b. How much did pension plan assets change during 2020?

Name three items that could have caused the change in plan assets.
Change in Plan Asset Balance

Balance, January 1, 2020 $ 80,000
Balance, December 31, 2020 140,000
Increase in Plan Assets $ 60,000
Three possible causes for change in pension plan assets

1. Actual return on plan assets (may be increase or decrease)
2. Cash received from employer company (increase)
3. Pension benefits paid to retirees (decrease)
c. Compute the plan's funded balance at (1) January 1, 2020, and

(2) December 31, 2020. Explain what these amounts mean.

Funded status $ (84,000)

Funded status $ (74,000)
The underfunded PBO is the cash shortage that would exist if all of the pension benefits (at actuarial present value,
including the effects of future salary adjustments) were to be paid on each of the measurement dates. Conceptually,
the unfunded PBO is the employer’s net obligation (some of which may not have been recognized) assuming the
pension plan continues in effect.
PROBLEMS
The underfunded PBO is the cash shortage that would exist if all of the pension benefits (at actuarial present value,
including the effects of future salary adjustments) were to be paid on each of the measurement dates. Conceptually,
the unfunded PBO is the employer’s net obligation (some of which may not have been recognized) assuming the
pension plan continues in effect.

P 19-65. Computing Pension Gain/loss
Compute accumulated OCI—pension gain/loss at January 1, 2021.
Accumulated OCI-Pension Gain/Loss Reconciliation

Amortization of Accumulated OCI—Pension Gain/Loss ($7,000/10) 700
Unexpected loss on plan assets (see below) 2,000
Actuarial loss on PBO 8,000
Supporting calculations

Actual return x
x = 220,000 - 200,000 - 20,000 + 32,000 $ 12,000
Actual return on plan assets $ 12,000

Expected return on plan assets (.07 x $200,000) 14,000
Unexpected loss on plan assets $ (2,000)

P 19-66. Preparing Entries and Reconciliations for Pension Plans
a. Prepare a reconciliation of plan assets for 2020.

Actual return 10,000
Benefit payments -
b. Compute funded balance.


c. Provide the 2020 entries.

Interest cost 3,600
$ 53,600

Plan Assets 10,000

Plan Assets 37,000
©Cambridge Business Publishers P19-66. pg.46

Cash 37,000

d. Provide the same entries in (c), assuming cash funding of $55,000.

Interest cost 3,600
$ 53,600

Plan Assets 10,000

Plan Assets 55,000
Cash 55,000
e. Provide the computation for the $3,600 of interest.
Interest expense ($40,000 x .09) $ 3,600

PROBLEMS
P 19-67. Preparing Entries and Worksheet for Pension Plan
Luloo Inc. Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Balance, January 1, 2020 $ 2,000 $ (2,400) $ (400) $ 180 $ 144
Service cost (312) (312) $ 312
Expected return 120 120 (120)
Actuarial loss on PBO (72) (72) 72 $ 72
Prior service cost amortization (144 / 9)) (16) 16 $ (16)
Balance, December 31, 2020 $ 2,240 $ (2,792) $ (552) $ 164 $ 216 $ 376 $ (16) $ 72

Pension Expense 376
Plan Assets 120
OCI—Pension Gain/Loss -


Plan Assets 280
Cash 280

Plan Assets 160
(.10 x $2,400) $ 240
Accumulated OCI—Pension Gain/Loss - corridor ($144- $240) -
Average service period
Amortization of loss on PBO: $ -

P19-68. Preparing Worksheet for Pension Plan and Analyze Changes
a. Create a worksheet to summarize the pension data required at the end of 2020.
Cruise Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Balance, January 1, 2020 $ 12,600 $ (16,000) $ (3,400) $ 1,980 $ (440)
Service cost (1,920) (1,920) $ 1,920
Interest cost (1,280) (1,280) 1,280
Actuarial loss on PBO (660) (660) 660 $ 660
Prior service cost amortization ($1,980 / 11) (180) 180 $ (180)
Balance, December 31, 2020 $ 15,000 $ (18,260) $ (3,260) $ 1,800 $ 220 $ 2,380 $ (180) $ 660

Plan Assets 1,000
Note: Loss of $440 is below the corridor of $1,600 (.10 x $16,000), thus no amortization in 2020.


Plan Assets 3,000
Cash 3,000

Plan Assets 1,600
b. The company president asked the following question: We paid $3,000 cash to the pension fund, but the
pension liability increased over $2,000. Why? Prepare a written response with data and explanation.
Plan PBO
Assets
Balance, January 1, 2020 $ 12,600 $ (16,000)
Service cost (1,920)
Interest cost (1,280)
Expected return 1,000
Actuarial loss on PBO (660)
Prior service cost amortization ($1,980 / 11)
Contributions to fund 3,000
Balance, December 31, 2020 $ 15,000 $ (18,260)
While we contributed $3,000 to the plan assets (which increased the asset balance), we also paid out benefits to retirees
of $1,600 and received a return on our investments of $1,000. Thus, the investment balance increased by $2,400, net.
On the liability side, the increase of $3,860 due to the current year's service cost, interest cost, and actuarial loss on the
PBO were offset by the retiree benefits paid of $1,600. Thus, the liability increased by $2,260, net.

P19-69. Analyzing Pension Information for Two Years
a. Funded balance as of December 31, 2020.

b. Funded balance as of December 31, 2021.

c. Actual return on plan assets
Actual return (.09 x $95,000) + ($3,450 - $1,000) $ 11,000
d. Employer contributions

Actual return on plan assets (see (c)) 11,000
e. Service cost

PBO, January 1, 2020 $ 120,000
Service cost (solve for this) 86,400
Interest cost (8% x $120,000) 9,600
Prior service cost adjustment (given) 18,000
Actuarial gain or loss on PBO -
Benefit payments (given) (40,000)
PBO, December 31, 2020 $ 194,000

f. Total pension expense

Interest cost ($120,000 x .08) 9,600

PROBLEMS
P19-70. Preparing Pension Worksheets for Two Years
Create a worksheet to summarize the pension data required at the end of 2020 and 2021.
2020—Voss Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Balance, January 1, 2020 $ 940 $ (1,520) $ (580) $ 100 $ 182
Prior service cost amendment, January 1, 2020 (20) (20) 20 $ 20
Service cost (200) (200) $ 200
Expected return (.10 x 940) 94 94 (94)
Pension gain/loss amortization (3) 3 (3)
Balance, December 31, 2020 $ 1,084 $ (1,752) $ (668) $ 108 $ 199 $ 273 $ 8 $ 17
(.10 x ( $1,520 + 20)) $ 154
Accumulated OCI—Pension Gain/Loss - Corridor ($182- $154) $ 28
Average service period 10
2021—Voss Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Plan PBO Net Pension Prior Pension Cash Pension Prior Pension
Assets Asset/Liability Service Cost Gain/Loss Outflow Expense Service Cost Gain/Loss
Balance, January 1, 2021 $ 1,084 $ (1,752) $ (668) $ 108 $ 199
Prior service cost amendment (13) (13) 13 $ 13
Service cost (238) (238) $ 238
Expected return (.10 x $1,084) 108 108 (108)
Pension gain/loss amortization (2) 2 (2)
Balance, December 31, 2021 $ 1,326 $ (1,979) $ (653) $ 108 $ 219 $ 285 $ - $ 20
(.10 x ( $1,752 + 13)) $ 177

P19-71. Preparing Pension Worksheets for Two Years
a. Prepare pension worksheets.
2020—Andros Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Balance, January 1, 2020 $ 1,000 $ (1,700) $ (700) $ - $ 150
Prior service cost amendment (240) (240) 240 $ 240
Service cost (180) (180) $ 180
Interest cost (.08 x $1,940) (155) (155) 155
Unexpected loss on assets ($90-$100) (10) (10) 10 $ 10
Prior service cost amortization ($240/10) (24) 24 (24)
Balance, December 31, 2020 $ 1,210 $ (2,215) $ (1,005) $ 216 $ 180 $ 259 $ 216 $ 30
Note: no amortization of the pension gain/loss because the beginning balance of $150 is less than the corridor of 194 or $1,940 x .10.
2021—Andros Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Plan PBO Net Pension Prior Pension Cash Pension Prior Pension
Assets Asset/Liability Service Cost Gain/Loss Outflow Expense Service Cost Gain/Loss
Balance, January 1, 2021 $ 1,210 $ (2,215) $ (1,005) $ 216 $ 180
Service cost (210) (210) $ 210
Interest cost (.09 x $2,215) (199) (199) 199
Unexpected loss on assets ($110 - $121) (11) (11) 11 $ 11
Prior service cost amortization ($216/9) (24) 24 $ (24)
Balance, December 31, 2021 $ 1,635 $ (2,504) $ (869) $ 192 $ 196 $ 312 $ (24) $ 16
Note: no amortization of the pension gain/loss because the beginning balance of $180 is less than the corridor of $222 or $2,215 x .10.
2020
January 1, 2020—To record prior service cost plan amendment

PBO 240

Pension Expense 259
Plan Assets 100

Plan Assets 10


Plan Assets 200
Cash 200

Plan Assets 80
2021

Pension Expense -
Plan Assets -
OCI—Prior Service Costs -

OCI—Pension Gain/Loss (121)
Plan Assets (121)


Plan Assets -
Cash -

Projected Benefit Obligation -

Plan Assets -

P19-72. Preparing Pension Worksheet
a. Prepare pension worksheets.
2020—Jack Company Reported Net in Financial Statements Reported on Balance Sheet Reported in Comprehensive Income
Accumulated OCI OCI
Plan Net Pension Prior Pension Cash Pension Prior
Assets PBO Asset/Liability Service Cost Gain/Loss Outflow Expense Service Cost
Balance, January 1, 2020 $ 170 $ (300) $ (130) $ 40 $ 80
Service cost (50) (50) $ 50
Interest cost (.08 x $300) (24) (24) 24
Expected return (.06 x $170) 10 10 (10)
Unexpected loss on assets ($8 - $10) (2) (2) 2
Actuarial gain on PBO 10 10 (10)
Amortization of pension gain/loss (5) 5
Prior service cost amortization ($40/10) (4) 4 $ (4)
Balance, December 31, 2020 $ 164 $ (240) $ (76) $ 36 $ 67 $ 73 $ (4)
(.10 x $300) $ 30
2020

Pension Expense 73
Plan Assets 10
PBO (Service cost + interest cost) 74

Plan Assets 2

PBO 10

Plan Assets 110
Cash 110

PBO 124
Plan Assets 124

ported in Comprehensive Income

OCI
Pension
Gain/Loss
$ 2
(10)
(5)
$ (13)

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Intermediate Accounting, 2e Solutions Manual

BE 19-21. December 31, 2020—To fund defined contribution plan

BE 19-22. 1. VBO: 2.5% x 2 years x $90,000 x 15% $ 675

BE 19-23. Reconciliation of PBO, December 31, 2021

Benefit payments $ 22,250

BE 19-24. Reconciliation of PBO, December 31, 2020

BE 19-25. Reconciliation of PBO, December 31, 2020

Actuarial loss on PBO $ 64,000

BE 19-26. Reconciliation of Plan Assets, December 31, 2021

Employer contributions $ 12,750

BE 19-27. Reconciliation of Plan Assets, December 31, 2021

a Plan asset, beginning balance $ 268,900

BE 19-28. Funded Status, December 31, 2020

©Cambridge Business Publishers Brief Ex. pg.1

BE 19-29. Calculation of pension expense

BE 19-30. Prior service cost (increase PBO, decrease OCI) $ 120,000

Prior service cost amortization (increase pension expense*) $ 12,000

BE 19-31. Calculation of amortization of pension gain/loss

Amortization of gain on PBO $ 26,250

BE 19-32. December 31, 2020—To record pension expense

2020—To record funding of plan assets

BE 19-33. December 31, 2020—To record pension expense

2020—To record funding of plan assets

2020—To record benefits paid

BE 19-34. Funded Status, December 31, 2020

©Cambridge Business Publishers Brief Ex. pg.2

BE 19-35. Other comprehensive income (loss)

Comprehensive income (loss)

Accumulated other comprehensive income

BE 19-36. Pharrell Inc.

BE 19-37. Pension Worksheet Reported Net in Financial Statements Balance Sheet

©Cambridge Business Publishers Brief Ex. pg.3

©Cambridge Business Publishers Brief Ex. pg.4

E 19-38. Recording Entries for Defined Contribution Plan

2020—To fund defined contribution plan

December 31, 2020—To fund defined contribution plan

©Cambridge Business Publishers

E 19-39. Computing ABO, PBO

Pension benefit: (number of years worked x final salary) / 25

Pension benefit: (number of years worked x current salary) / 25

©Cambridge Business Publishers

E 19-40. Analyzing Changes in PBO

December 31, 2020—PBO Calculation

Service cost $ 16,000

©Cambridge Business Publishers

(1) Plan Asset (2) PBO (3) Pension

©Cambridge Business Publishers

E 19-42. Analyzing Changes in Plan Assets

December 31, 2020—Plan Asset Calculation

Employer contributions $ 15,000

©Cambridge Business Publishers

E 19-43. Analyzing Changes in Plan Assets and PBO

December 31, 2020—Plan Asset Calculation

a Benefits paid $ (125)

December 31, 2020—PBO Calculation

©Cambridge Business Publishers

E 19-44. Calculating Pension Expense

Calculation of pension expense

©Cambridge Business Publishers