P20-8 (Comprehensive 2-Year Worksheet) Glesen Company sponsors a defined benefit
ID: 2434833 • Letter: P
Question
P20-8 (Comprehensive 2-Year Worksheet) Glesen Company sponsors a defined benefit pension planfor its employees. The following data relate to the operation of the plan for the years 2008 and 2009.
2008 2009
Projected benefit obligation, January 1 $650,000
Plan assets (fair value and market related value), January 1 410,000
Prepaid/accrued pension cost (credit), January 1 80,000
Additional pension liability, January 1 12,300
Intangible asset-deferred pension cost, January 1 12,300
Unrecognized prior service cost, January 1 160,000
Service cost 40,000 $ 59,000
Settlement rate 10% 10%
Expected rate of return 10% 10%
Actual return on plan assets 36,000 61,000
Amortization of prior service cost 70,000 55,000
Annual contributions 72,000 81,000
Benefits paid retirees 31,500 54,000
Increase in projected benefit obligation due to
changes in actuarial assumptions 87,000 –0–
Accumulated benefit obligation at December 31 721,800 789,000
Average service life of all employees 20 years
Vested benefit obligation at December 31 464,000
Instructions
(a) Prepare a pension worksheet presenting both years 2008 and 2009 and accompanying computations
including the computation of the minimum liability (2008 and 2009) and amortization of the
unrecognized loss (2009) using the corridor approach.
(b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events
at December 31 of each year.
(c) At December 31, 2009, prepare a schedule reconciling the funded status of the pension plan with
the pension amounts reported in the financial statements.
Explanation / Answer
(Error Corrections and Accounting Changes) Patricia Voga Company is in the process of adjusting and correcting its books at the end of 2008. In reviewing its records, the following information is compiled. 1 . Voga has failed to accrue sales commissions payable at the end of each of the last 2 years, as follows. December 31, 2007 $4,000 December 31, 2008 $2,500 2 . In reviewing the December 31, 2008, inventory, Voga discovered errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows. December 31, 2006 Understated $16,000 December 31, 2007 Understated $21,000 December 31, 2008 Overstated $6,700 Voga has already made an entry that established the incorrect December 31, 2008, inventory amount. 3 . At December 31, 2008, Voga decided to change the depreciation method on its office equipment from double-declining balance to straight-line. The equipment has an original cost of $100,000 when purchased on January 1, 2006. it has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2008 under the double-declining balance method was $36,000. Voga has already recorded 2008 depreciation expense of $12,800 using the double-declining balance method. 4 . Before 2008, Voga accounted for its income from long-term construction contracts on the completedcontract basis. Early in 2008, Voga changed to the percentage-of-completion basis for accounting purposes. It continues to use the completed-contract method for tax purposes. Income for 2008 has been recorded using the percentage-of-completion method. The following information (on page 1199) is available. Pretax Income Percentage-of-Completion Completed-Contract Prior to 2008 $150,000 $95,000 2008 60,000 20,000 Instructions (Error Corrections and Accounting Changes) Patricia Voga Company is in the process of adjusting and correcting its books at the end of 2008. In reviewing its records, the following information is compiled. 1 . Voga has failed to accrue sales commissions payable at the end of each of the last 2 years, as follows. December 31, 2007 $4,000 December 31, 2008 $2,500 2 . In reviewing the December 31, 2008, inventory, Voga discovered errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows. December 31, 2006 Understated $16,000 December 31, 2007 Understated $21,000 December 31, 2008 Overstated $6,700 Voga has already made an entry that established the incorrect December 31, 2008, inventory amount. 3 . At December 31, 2008, Voga decided to change the depreciation method on its office equipment from double-declining balance to straight-line. The equipment has an original cost of $100,000 when purchased on January 1, 2006. it has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2008 under the double-declining balance method was $36,000. Voga has already recorded 2008 depreciation expense of $12,800 using the double-declining balance method. 4 . Before 2008, Voga accounted for its income from long-term construction contracts on the completedcontract basis. Early in 2008, Voga changed to the percentage-of-completion basis for accounting purposes. It continues to use the completed-contract method for tax purposes. Income for 2008 has been recorded using the percentage-of-completion method. The following information (on page 1199) is available. Pretax Income Percentage-of-Completion Completed-Contract Prior to 2008 $150,000 $95,000 2008 60,000 20,000 Instructions Prepare the journal entries necessary at December 31, 2008, to record the above corrections and changes. The books are still open for 2008. The income tax rate is 40%. Voga has not yet recorded its 2008 income tax expense and payable amounts so current-year tax effects may be ignored. Prior-year tax effects must be considered in item 4.
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