Melanie Vail Corp. sponsors a defined benefit pension plan for its employees. On
ID: 2525302 • Letter: M
Question
Melanie Vail Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan.
Plan assets $480,000
Projected benefit obligation: 625,000
Accumulated OCI (PSC): 100,000 Dr.
Accumulated OCI (Gain/Loss): 85,000 Cr.
As a result of the operation of the plan during 2017, the following additional data are provided by the actuary:
Service cost for 2017: $90,000
Settlement rate: 9%
Actual return on plan assets in 2017: 57,000
Expected return on plan assets: 10%
Unexpected loss from change in projected benefit obligation, due to change in actuarial predictions: 76,000
Contributions in 2017: 99,000
Benefits paid retirees in 2017: 85,000
Avg. remaining service life (all employees): 12 years
- Use the spreadsheet Pensions to prepare a pension worksheet. On the pension worksheet, compute pension expense, pension asset/liability, projected benefit obligation, plan assets, prior service cost, and net gain or loss.
-Prepare the journal entry using the spreadsheet Journal Entries to record pension expense in 2017.
-Indicate the reporting of the 2017 pension amounts in the income statement and balance sheet using the spreadsheet Pensions.
-What is the amount of deferred pension gain or loss that the company will carry forward to 2018?
-Compute the same items as in (#1), assuming that the expected rate of return is 14% and the Accumulated OCI (Gain/Loss) is a Debit balance at January 1, 2017.
General Journal Entries Annual Pension Expense Memo Record Projected Benefit Obligation OCI-Prior Service Cost Pension Asset/Liabilit Items Cash Gain/Loss Plan assets Balance, Jan. 1, 2015 Service cost Interest cost Actual Return Expected Return Amortization of PSC Contributions Benefits Liability increase Journal entry for 201 Accumulated OCI, Dec. 31, 2014 Balance, Dec. 31, 2015Explanation / Answer
a. Pension Worksheet Melanie Vail corp Pension worksheet - 2017 General Journal Entries Memo Record Items Annual Pension Expense Cash OCI: Prior Service Cost OCI:(Gains)/Losses Pension Asset/(Liability) Projected Benefit Obligation Plan Assets Balance January 1,2017 ($145,000) ($625,000) $480,000 (a)Service Cost $90,000 ($90,000) (b)Interest Cost $56,250 ($56,250) ( c )Expected /actual return ($57,000) $57,000 (d)Unexpected gain $9,000 ($9,000) (e)Contributions ($99,000) $99,000 (f)Benefit paid to retirees $85,000 ($85,000) (g)Unexpected loss from change in PBO $76,000 ($76,000) Journal entry for 2017 $98,250 ($99,000) $0 $67,000 ($66,250) Accumulated OCI, 1/1/2017 $100,000 ($85,000) Balance, December 31, 2017 $100,000 ($18,000) ($211,250) ($762,250) $551,000 Interest cost = $625000 x 9% = $56250 Expected return = $480000 x 10% = $48000 Unexpected Gain = $57000 - $48000 = $9000 Journal Entry for 2017 Pension Expense $98,250 OCI-Gain/Loss $67,000 Cash $99,000 Pension Liability $66,250 Pension expense of $98250 will be reported in income statement and Pension liability of $211250 will be reported in balance sheet Deferred pension gain of $18000 will be carried forward to 2018 e. Pension Worksheet Melanie Vail corp Pension worksheet - 2017 General Journal Entries Memo Record Items Annual Pension Expense Cash OCI: Prior Service Cost OCI:(Gains)/Losses Pension Asset/(Liability) Projected Benefit Obligation Plan Assets Balance January 1,2017 ($145,000) ($625,000) $480,000 (a)Service Cost $90,000 ($90,000) (b)Interest Cost $56,250 ($56,250) ( c )Expected /actual return ($57,000) $57,000 (d)Unexpected loss ($10,200) $10,200 (e)Contributions ($99,000) $99,000 (f)Benefit paid to retirees $85,000 ($85,000) (g)Unexpected loss from change in PBO $76,000 ($76,000) Journal entry for 2017 $79,050 ($99,000) $0 $86,200 ($66,250) Accumulated OCI, 1/1/2017 $100,000 $85,000 Balance, December 31, 2017 $100,000 $171,200 ($211,250) ($762,250) $551,000 Expected return = $480000 x 14% = $67200 Unexpected loss = $67200 - $57000 = $10200