1. Able Inc. adopted a defined benefit pension plan, with the following balances

Question

1. Able Inc. adopted a defined benefit pension plan, with the following balances on January 1, 2017: plan assets $264,500; projected benefit obligation $422,800; Accumulated OCI-net loss $3,000. Other data related to the operation of the plan are as follows 2017 2018 Annual service cost Interest rate and expected rate of return Actual return on plan assets I Annual funding (contributions) Benefits paid Prior service cost (plan amended 1/1/16) Amortization of prior service cost Change in actuarial assumptions, Dec 31 PBO Average remaining service life S 26,000 25,000 10% 25,000 49,000 21,000 22,000 10% 24,000 48,000 41,600 520,000 15 years 36,000 15 years The journal entries to record pension related activities for the year 2017 include a. Debit pension expense for $83,430. b. Debit cash for $48,000. c. Credit PBO for $97.200 d. Debit Plan Asset for $51,000.

Explanation / Answer

a Pension expense debit 83,430 is correct:

Pension expense for 2017 is:

Note: Interest cost = opening amount of PBO multiplied with interest rate= 422800*10% = 42280

No amount of opening balance OCI-loss is amortized after calculating under corridor approach:

Expected return on plan assets = opening balance of plan assets multiplied with expected return % = 264500 * 10% = 26450

b Debit cash for 48,000 is incorrect

the amount of contributions to plan assets is 48,000 it is a credit to cash but not a debit to cash

c Credit PBO for 97,200 is incorrect

PBO is increased by service cost, interest cost and decreased by the amount of distributions:

Since entry is passed for 47,280 given 97,200 is incorrect

d Plan assets debit for 51,000 is correct

Plan assets is increased by actual return , contirbutions and decreased by the amount of benefits paid

*Hope the above explanation helps, please comment if further explanation is required. Your rating is appreciated*

Particulars Amount Service cost        26,000 Interest cost        42,280 Prior service cost amortization        41,600 Expected return on plan assets      -26,450 Total        83,430

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.