Brief Exercise 20-1
AMR Corporation (parent company of American Airlines) reported the following (in millions).
Service cost
$366
Interest on P.B.O.
737
Return on plan assets
593
Amortization of prior service cost
13
Amortization of net loss
154
Compute AMR Corporation’s pension expense. (Enter answer in millions.)
$
Pension expense
677
millions
Service cost
$366
Interest on PBO
737
Return on plan assets
(593)
Amortization of prior service cost
13
Amortization of net loss
154
Pension expense
$677
Brief Exercise 20-2
For Bonita Corporation, year-end plan assets were $2,032,000. At the beginning of the year, plan
assets were $1,794,000. During the year, contributions to the pension fund were $115,000, and
benefits paid were $199,000.
Compute Bonita’s actual return on plan assets.
Actual return on plan assets
$
322,000
Ending plan assets
Beginning plan assets
Increase in plan assets
Deduct: Contributions
Less: Benefits paid
$2,032,000
(1,794,000)
238,000
$115,000
199,000
(84,000)
Actual return on plan assets
$322,000
Brief Exercise 20-3
At January 1, 2017, Wildhorse Company had plan assets of $293,300 and a projected benefit obligation of the same amount. During
2017, service cost was $26,400, the settlement rate was 10%, actual and expected return on plan assets were $25,000, contributions were
$20,400, and benefits paid were $17,600.
Prepare a pension worksheet for Wildhorse Company for 2017.
WILDHORSE COMPANY
General Journal Entries
Items
Memo Record
Pension
Expense
Cash
Pension
Asset/Liability
Projected
Benefit
Obligation
$
$
$
$
1/1/17
293,300
Cr.
Service cost
26,400
Dr.
26,400
Cr.
Interest cost
29,330
Dr.
29,330
Cr.
Actual return
25,000
Cr.
Contributions
20,400
Cr.
Plan
Assets
$
293,300
Dr.
25,000
Dr.
20,400
Dr.
17,600
Benefits
$
Journal entry,
12/31/17
Balance,
12/31/17
30,730
Dr.
17,600
Cr.
$
Dr.
20,400
Cr.
10,330
Cr.
$
10,330
$
Cr.
331,430
$
Cr.
321,100
Dr.
Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and actual returns differ,
then an additional adjustment is made to compute the proper amount of pension expense.
Brief Exercise 20-4
Campbell Soup Company reported pension expense of $73 million and contributed $71 million to the pension
fund.
Prepare Campbell Soup Company’s journal entry to record pension expense and funding, assuming Campbell
has no OCI amounts. (Credit account titles are automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Enter
amounts in millions. Ex: 10,000,000 is to be imputed as 10, eliminating the 000,000.)
Account Titles and Explanation
Pension Expen
Debit
Credit
73
Pension Asse
2
Cash
71
Brief Exercise 20-5
Sheffield Corporation amended its pension plan on January 1, 2017, and granted $151,240 of prior service costs
to its employees. The employees are expected to provide 1,990 service years in the future, with 340 service years
in 2017.
Compute prior service cost amortization for 2017.
Prior service cost amortization for 2017
$
25,840
Cost per service year:
$151,240/1,990 = $76
2017 amortization:
340 x $76
= $25,840
Brief Exercise 20-6
At December 31, 2017, Tamarisk Corporation had a projected benefit obligation of $590,700, plan assets of
$351,900, and prior service cost of $136,300 in accumulated other comprehensive income.
Determine the pension asset/liability at December 31, 2017. (Enter liability using either a negative sign preceding
the number e.g. -45 or parentheses e.g. (45).)
Pension asset/liability at December 31, 2017
$
-238,800
Project benefit obligation $(590,700)
Plan assets at fair value
351,900
Pension liability
$(238,800)
Brief Exercise 20-7
Oriole Corporation had a projected benefit obligation of $2,992,000 and plan assets of $3,156,000 at January 1,
2017. Oriole also had a net actuarial loss of $457,720 in accumulated OCI at January 1, 2017. The average
remaining service period of Oriole’s employees is 7.60 years.
Compute Oriole’s minimum amortization of the actuarial loss.
Minimum amortization of the actuarial loss
Net loss in accumulated OCI
Corridor (10% x $3,156,000)
$
18,700
$457,720
(315,600)
Excess
142,120
Average remaining service life ÷
7.60
Minimum amortization
$18,700
Brief Exercise 20-8
Metlock Corporation has the following balances at December 31, 2017.
Projected benefit obligation
$2,357,000
Plan assets at fair value
1,791,000
Accumulated OCI (PSC)
1,182,000
What is the amount for pension liability that should be reported on Metlock's balance sheet at December 31,
2017?
Pension liability balance at December 31, 2017
$
566,000
Projected benefit obligation
Fair value of plan assets
Pension liability (classified short-term or long-term depending on when due)
$2,357,000
(1,791,000)
$566,000
Prior service cost is reported as a component of accumulated other comprehensive income in stockholders’
equity.
Brief Exercise 20-9
Pina Co. had the following amounts related to its pension plan in 2017.
Actuarial liability loss for 2017
$25,200
Unexpected asset gain for 2017
19,200
Accumulated other comprehensive income (G/L) (beginning balance)
7,500 Cr.
Determine for 2017: (a) Pina’s other comprehensive income (loss), and (b) comprehensive income. Net income
for 2017 is $23,500; no amortization of gain or loss is necessary in 2017. (Enter loss using either a negative sign
preceding the number e.g. -45 or parentheses e.g. (45).)
(a) Other comprehensive income (loss)
$
-6,000
$
(b) Comprehensive income (loss)
17,500
(a) Other Comprehensive Loss for 2017 is as follows:
Actuarial liability loss
Unexpected asset gain
Other comprehensive loss
($25,200)
19,200
($6,000)
(b) The computation of comprehensive income for 2017 is as follows:
Net income
$23,500
Other comprehensive loss (6,000)
Comprehensive income
$17,500
Brief Exercise 20-10
Larkspur Corp. has three defined benefit pension plans as follows.
Pension Assets Projected Benefit
(at Fair Value)
Obligation
Plan X
$637,000
$476,000
Plan Y
825,000
712,000
Plan Z
550,000
747,000
How will Larkspur report these multiple plans in its financial statements?
Pension Asset
Pension Liability
$
274,000
$
197,000
Pension Assets Projected Benefit
(at Fair Value)
Obligation
Plan X
Plan Y
Plan Z
$637,000
825,000
550,000
Pension Asset/
Liability
$476,000 $161,000 asset
712,000 $113,000 asset
747,000 $197,000 liability
Larkspur reports a pension asset of $274,000 ($161,000 + $113,000) and a pension liability of $197,000.
Exercise 20-1
The following information is available for the pension plan of Flounder Company for the year 2017.
Actual and expected return on plan assets
$ 13,600
Benefits paid to retirees
43,400
Contributions (funding)
92,100
Interest/discount rate
10 %
Prior service cost amortization
7,600
Projected benefit obligation, January 1, 2017
Service cost
481,000
63,300
Compute pension expense for the year 2017.
Pension expense for 2017
$
105,400
Computation of pension expense:
Service cost
$ 63,300
Interest cost ($481,000 x 10%)
48,100
Expected return on plan assets (13,600)
Prior service cost amortization
7,600
Pension expense for 2017
$105,400
Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in
2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Pension Expen
Debit
Credit
105,400
Cash
92,100
Pension Asse
5,700
Other Compre
7,600
Exercise 20-9
Concord Enterprises provides the following information relative to its defined benefit pension plan.
Balances or Values at December 31, 2017
Projected benefit obligation
$2,758,700
Accumulated benefit obligation
1,977,400
Fair value of plan assets
2,259,100
Accumulated OCI (PSC)
Accumulated OCI—Net loss (1/1/17 balance, 0)
Pension liability
209,600
45,300
499,600
Other pension plan data for 2017:
Service cost
Prior service cost amortization
$94,100
41,600
Actual return on plan assets
130,300
Expected return on plan assets
175,600
Interest on January 1, 2017, projected benefit
obligation
Contributions to plan
Benefits paid
254,600
93,700
141,100
Prepare the note disclosing the components of pension expense for the year 2017. (Enter amounts that reduce
pension expense with either a negative sign preceding the number e.g. -45 or parenthesis e.g. (45).)
Components of Pension Expense
$
Service Cost
94,100
Interest Cost
254,600
Expected Return on Plan Assets
-175,600
Prior Service Cost Amortization
41,600
$
Pension Expense
214,700
Determine the amounts of other comprehensive income and comprehensive income for 2017. Net income for
2017 is $35,200. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
$
Other comprehensive income (loss)
-3,700
$
Comprehensive income (loss)
31,500
Comprehensive income, 2017
Amortization of prior service cost $(41,600)
Actuarial loss
45,300
Other comprehensive loss
$3,700
Comprehensive income, 2017
Net income
Other comprehensive loss
$35,200
3,700
Comprehensive income
$31,500
Compute the amount of accumulated other comprehensive income reported at December 31, 2017. (Enter loss
using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Accumulated other comprehensive income (loss)
$
-254,900
Accumulated OCI at December 31, 2017 is $254,900; this amount is comprised of the following:
PSC
Balance Jan. 1, 2017* $251,200 Dr.
Amortization of PSC
41,600 Cr.
Unexpected loss
Gain/Loss
$0
—
45,300 Dr.
Balance Dec. 31, 2017 $209,600 Dr. $45,300 Dr.
*$209,600 + $41,600
Annual
Pension
Expense
Concord Enterprises
Pension Worksheet
General Journal Entries
OCI—
Pension
OCI—Prior
Gain/
Asset/
Cash
Service Cost
Loss
Liability
Balance, Jan.
1, 2017
$374,90 Cr. $2,551,10 Cr.
0
0*
Service cost
$94,100
Interest cost
254,600
Dr.
$2,176,20 Dr. *
0*
94,100 Cr.
Dr.
254,600 Cr.
Actual return 130,300 Cr.
Unexpected
45,300 Cr.
gain
Amortization
Dr.
41,600
of PSC
Contribution
s
Benefits
Memo Record
Projected
Benefit
Plan
Obligation
Assets
130,300 Dr.
$45,30 Dr.
0
$41,600 Cr.
$93,70 Cr.
0
93,700 Dr.
141,100 Dr.
141,100 Cr.
Accumulated
OCI, Dec.
31, 2016
251,200
Balance,
Dec. 31,
2017
$209,60 Dr. $45,30 Dr. $499,60 Cr. $2,758,70
Cr.
0
0
0
0
$2,259,10
Dr.
0
Journal entry $214,70 Dr. $93,70 Cr.
for 2017
0
0
41,600 Cr. 45,300
Dr.
Dr.
124,700
Cr.
0
*$2,758,700 + $141,100 – $254,600 – $94,100 = $2,551,100
**$2,259,100 + $141,100 – $93,700 – $130,300 = $2,176,200