On January 1, 2014, Harrington Company has the following defined benefit pension

Question

On January 1, 2014, Harrington Company has the following defined benefit pension plan balances.

The interest (settlement) rate applicable to the plan is 10%. On January 1, 2015, the company amends its pension agreement so that prior service costs of $507,300 are created. Other data related to the pension plan are as follows.

2014

2015

Prepare a pension worksheet for the pension plan for 2014 and 2015.

HARRINGTON COMPANY
Pension Worksheet—2014 and 2015

General Journal Entries

Memo Record

Annual Pension
Expense

Cash

OCI—Prior
Service Cost

OCI—Gain/
Loss

Pension Asset/
Liability

Projected Benefit
Obligation

Plan
Assets

Projected benefit obligation $4,514,000 Fair value of plan assets 4,203,300

Explanation / Answer

1) Interst cost for each year has been calculated at opening balances of defined benefit obligation

Interst rate is given at 10 %

2) Pension plan asset / liability has been calculated as difference between benefit obligation and plan asset

3) service cost and interest cost are expenses therefore have been ddebited to expense

4) actual return and contributions are income therfore credited in pension expense

5) in 2014 there is no unexpected loss as expected return (Plan assets x 6 %, 4203300 x 6%, = 252198 is equal to actual return 252198)

6) in 2015 there is unexpected loss as expected return = 4503298 x 8% (Plan Asset x expected return), = 360264

Whereas actual return is 271300 , therefore there is loss of 360264 -271300, = 88964

7) for 2015 interest cost will be calculated on benefit obligations after considering past pension cost

8) There is no Accumulated OCi at beginning and ending of 2014

OCI - OCI - Unrecognised Unrecognised Items Annual Pension Expense Cash Prior Service Cost Gain/ Loss Pension asset / Liability Projected Benefit Obligation Plan Assets Past service cost Net Gain/ Loss Balance Jan1, 2014 310700 cr. 4514000 cr. 4203300 dr. Service cost 157900 dr 157900 cr. Interest cost 451400 dr. 451400 cr. Actual return 252198 cr. 252198 dr. Contributions 251600 cr. 251600 dr. Benefits 203800 dr. 203800 cr. Journal entry for 2014 357102 dr 251600 cr. 105502 cr. Accumulated OCI, 31-Dec-13 Balance Dec 31, 2014 416202 cr. 4919500 cr. 4503298 dr. Additional PSC, 1/1/2015 507300 cr. 507300 dr. Balance Jan 1 , 2015 5426800 cr. 4503298 dr. 507300 dr. Service cost 189300 dr. 189300 cr. Interest cost 542680 dr. 542680 cr. Actual return 271300 cr. 271300 dr. Unexpected Loss 88964 cr. 88964 dr. Amortization of PSC 90500 dr. 90500 cr. Contributions 304800 cr. 304800 dr. Benefits 297500 dr. 297500 cr. Journal entry for 2015 460680 dr. 304800 cr. 90500 dr. 88964 cr. 157416 cr. Accumulated OCI, 31-Dec-14 Balance Dec 31, 2015 573618 cr. 5861280 cr. 4781898 dr. 416800 dr. 88964 dr.

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