On 1-1-2016, Michaelsen Corporation initiated a funded, noncontributory, defined
ID: 2341873 • Letter: O
Question
On 1-1-2016, Michaelsen Corporation initiated a funded, noncontributory, defined benefit pension plan and gave employees credit for prior employment. The company complies with generally accepted accounting principles (GAAP). The actuary estimated the prior service cost to be $700,000 on 1-1-2016. Michaelsen contributed $600,000 to the pension fund on 1-1-2016, i.e., funded $600,000. The average remaining service period of current employees is approximately 6 years at all times. Service cost was $50,000 for 2016. The actual return on pension plan assets was 8% for 2016. The settlement rate (i.e., the actuary’s discount rate) is 4% per year. The expected return on pension plan assets is 5% per year. The market related value of pension plan assets is the same as the fair value of pension plan assets. Michaelsen contributed $175,000 to the pension fund on 12-31-2016, i.e., funded $175,000.
Required
On its 12-31-2016 balance sheet Michaelsen will report a pension plan
Explanation / Answer
company name
Pension Worksheet
Minus sign indicate credit and positive indicate debit.
Memo fields
AOCI
Pension Expense
Cash
Net pension Liability/Assets
Pension benefits obligation
Plan assets
Prior service cost
Net gain
Beginning Balance
600000
600000
700000
0
1200000
Service cost
-50000
50000
Interest cost (600000*4%)
-24000
24000
Actual return
48000
-48000
unexpected gain
-18000
18000
Amortization of Prior service cost (700000/6)
-116667
116667
Contribution to pension fund
175000
-175000
Pension benefits paid
0
0
Journal Entries
-116667
-18000
160667
-175000
149000
Ending Balance
526000
823000
583333
-18000
1349000
company name
Journal entries
Date
Account title & explanation
Debit
Credit
Pension Expense
160667
Net pension Liability/Assets
149000
Prior service cost - AOCI
116667
Net Loss - AOCI
18000
Cash
175000
(To record Pension Expense.)
Expected return (Plan assets at fair value * Expected rate of return) (600000*5%)
30000
Actual return (600000*8%)
48000
Unexpected loss (gain)
-18000
company name
Pension Worksheet
Minus sign indicate credit and positive indicate debit.
Memo fields
AOCI
Pension Expense
Cash
Net pension Liability/Assets
Pension benefits obligation
Plan assets
Prior service cost
Net gain
Beginning Balance
600000
600000
700000
0
1200000
Service cost
-50000
50000
Interest cost (600000*4%)
-24000
24000
Actual return
48000
-48000
unexpected gain
-18000
18000
Amortization of Prior service cost (700000/6)
-116667
116667
Contribution to pension fund
175000
-175000
Pension benefits paid
0
0
Journal Entries
-116667
-18000
160667
-175000
149000
Ending Balance
526000
823000
583333
-18000
1349000
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