TO SOLUTIONS BRIEF EXERCISES
BRIEF EXERCISE 20-1
Service cost.............................................................
Interest on PBO.......................................................
Return on plan assets.............................................
Amortization of prior service cost.........................
Amortization of net loss.........................................
Pension expense.....................................................
$ 370,000,000
672,000,000
(747,000,000)
16,000,000
25,000,000
$ 336,000,000
BRIEF EXERCISE 20-2
Ending plan assets..................................................
Beginning plan assets............................................
Increase in plan assets...........................................
Deduct: Contributions...........................................
Less: Benefits paid.................................
Actual return on plan assets..................................
$2,000,000
1,780,000
220,000
$120,000
200,000
(80,000)
$ 300,000
BRIEF EXERCISE 20-3
BEATY COMPANY
General Journal Entries
Items
1/1/10
Service cost
Interest cost
Actual return*
Contributions
Benefits
Journal entry
12/31/10
Pension
Expense
Cash
Pension
Asset
/Liability
280,000 Cr. 280,000 Dr.
27,500 Cr.
28,000 Cr.
25,000 Dr.
20,000 Dr.
17,500 Dr. 17,500 Cr.
27,500 Dr.
28,000 Dr.
25,000 Cr.
20,000 Cr.
30,500 Dr. 20,000 Cr.
Memo Record
Projected
Benefit
Plan
Obligation
Assets
10,500 Cr.
10,500 Cr.
318,000 Cr. 307,500 Dr.
*Note: We show actual return on the worksheet to ensure that plan assets are
properly reported. If expected and actual return differ, then an additional
adjustment is made to compute the proper amount of pension expense.
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-1
BRIEF EXERCISE 20-4
Pension Expense......................................................
Cash...................................................................
32,000,000
32,000,000
BRIEF EXERCISE 20-5
Cost per service year:
$160,000/2,000 = $80
2010 amortization:
350 X $80 = $28,000
BRIEF EXERCISE 20-6
Project benefit obligation..........................................................
Plan assets at fair value............................................................
Pension liability..........................................................................
$(560,000)
322,000
$(238,000)
BRIEF EXERCISE 20-7
Net loss in accumulated OCI....................................................
Corridor (10% X $3,300,000).....................................................
Excess.........................................................................................
Average remaining service life.................................................
Minimum amortization...............................................................
$465,000
330,000
135,000
7.5
$ 18,000
BRIEF EXERCISE 20-8
Projected benefit obligation.....................................................
Fair value of plan assets...........................................................
Pension liability (classified short-term or
long-term depending on when due).....................................
$2,600,000
2,000,000
$ 600,000
Prior service cost is reported as a component of accumulated other comprehensive income in stockholders equity.
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-2
BRIEF EXERCISE 20-9
(a) Other Comprehensive Loss for 2010 is as follows:
Actuarial liability loss................................................
Unexpected asset gain..............................................
Other comprehensive loss........................................
($28,000)
18,000
($10,000)
(b) The computation of comprehensive income for 2010 is as follows:
Net income..................................................................
Other comprehensive loss........................................
Comprehensive income............................................
$ 26,000
(10,000)
$ 16,000
BRIEF EXERCISE 20-10
Plan X
Plan Y
Plan Z
Pension Assets
(at fair value)
$600,000
$900,000
$550,000
Projected Benefit
Obligation
$500,000
$720,000
$700,000
Pension Asset /
Liability
$100,000 asset
$180,000 asset
$150,000 liability
Lahey reports a pension asset of $280,000 ($100,000 + $180,000) and a pension
liability of $150,000.
*BRIEF EXERCISE 20-11
Service cost..................................................................................
Interest cost.................................................................................
Expected return on plan assets.................................................
Postretirement expense..............................................................
$40,000
47,400
(26,900)
$60,500
*BRIEF EXERCISE 20-12
Postretirement Expense................................................
Cash.........................................................................
Postretirement Asset /Liability..............................
240,900
180,000
60,900
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-3
SOLUTIONS TO EXERCISES
EXERCISE 20-1 (510 minutes)
(a) Computation of pension expense:
Service cost.......................................................
Interest cost ($500,000 X .10)...........................
Expected return on plan assets......................
Prior service cost amortization.......................
Pension expense for 2010................................
(b) Pension Expense......................................................
Cash....................................................................
Pension Asset /Liability....................................
Other Comprehensive Income (PSC)..............
$ 60,000
50,000
(15,000)
8,000
$103,000
103,000
90,000
5,000
8,000
EXERCISE 20-2 (1015 minutes)
Computation of pension expense:
Service cost..............................................................
Interest cost ($700,000 X 10%)................................
Expected return on plan assets..............................
Prior service cost amortization...............................
Pension expense for 2010.......................................
$ 90,000
70,000
(64,000)
10,000
$106,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-4
Balance, January 1, 2010
Service cost
90,000 Dr.
Interest cost*
70,000 Dr.
Actual return**
64,000 Cr.
Amortization of PSC
10,000 Dr.
10,000 Cr.
Contributions
105,000 Cr.
Benefits
Journal entry for 2010***
106,000 Dr. 105,000 Cr. 10,000 Cr.
150,000 Dr.
Accumulated OCI, Dec. 31, 2009
Balance, Dec. 31, 2010
140,000 Dr.
60,000 Cr.
Memo Record
Projected
Benefit
Obligation
Plan Assets
700,000 Cr.
90,000 Cr.
70,000 Cr.
640,000 Dr.
64,000 Dr.
40,000 Dr.
105,000 Dr.
40,000 Cr.
820,000 Cr.
769,000 Dr.
9,000 Dr.
51,000 Cr.
*$70,000 = $700,000 X 10%.
**Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and
actual return differ, then an additional adjustment is made to compute the proper amount of pension expense.
***Pension Expense...................................................
***Pension Asset/Liability..........................................
Other Comprehensive Income (PSC)..........
Cash.....................................................................
106,000
9,000
10,000
105,000
EXERCISE 20-3 (1525 minutes)
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
Items
BICKNER COMPANY
Pension Worksheet2010
General Journal Entries
Annual
OCI
Pension
Prior Service
Pension
Expense
Cash
Cost
Asset/Liability
20-17
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
40,000 Dr.
39,200 Dr.
49,700 Cr.
25,000 Cr.
29,500 Dr.
25,000 Cr.
4,500 Cr.
4,500 Cr.
Memo Record
Projected
Benefit
Plan
Obligation
Assets
490,000 Cr.
490,000 Dr.
40,000 Cr.
39,200 Cr.
49,700 Dr.
25,000 Dr.
33,400 Dr.
33,400 Cr.
535,800 Cr.
531,300 Dr.
*$39,200 = $490,000 X .08.
**Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If
expected and actual return differ, then an additional adjustment is made to compute the proper
amount of pension expense.
EXERCISE 20-4 (1015 minutes)
20-18
Items
Balance, January 1, 2010
Service cost
Interest cost*
Actual return**
Contributions
Benefits
Journal entry, December 31
Balance, December 31, 2010
BOUDREAU INC.
Pension Worksheet2010
General Journal Entries
Annual
Pension
Pension
Asset /
Expense
Cash
Liability
EXERCISE (1525 20-5 minutes)
Computation of Service-Years
Year
2010
2011
2012
2013
2014
2015
Jim
1
1
1
Paul
1
1
1
1
Nancy
1
1
1
1
1
3
4
5
Dave
1
1
1
1
1
1
6
Kathy
1
1
1
1
1
1
6
Total
5
5
5
4
3
2
24
Cost per service-year: $72,000 24 = $3,000
Computation of Annual Prior Service Cost Amortization
Year
Total
Service-Years
Cost Per
Service-Year
Annual
Amortization
2010
2011
2012
2013
2014
2015
5
5
5
4
3
2
$3,000
3,000
3,000
3,000
3,000
3,000
$15,000
15,000
15,000
12,000
9,000
6,000
$72,000
EXERCISE 20-6 (1015 minutes)
Computation of Actual Return on Plan Assets
Fair value of plan assets at 12/31/10........................
Fair value of plan assets at 1/1/10............................
Increase in fair value of plan assets........................
Deduct: Contributions to plan during 2010............
Less benefits paid during 2010.................
Actual return on plan assets for 2010......................
$2,725,000
2,400,000
325,000
$280,000
350,000
(70,000)
$ 395,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-7
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
EXERCISE 20-7 (1525 minutes)
20-20
SOLUTIONS TO EXERCISES
EXERCISE 20-1 (510 minutes)
(a) Computation of pension expense:
....................................................... Service cost
$ 60,000
........................... Interest cost ($500,000 X .10)
Items
Balance, Dec. 31, 2009
Prior service cost
Balance, Jan. 1, 2010
Service cost
Interest cost*
Actual return**
Amortization of PSC
Contributions
Benefits
Journal entry for 2010
Accumulated OCI, Dec. 31, 2009
Balance, Dec. 31, 2010
RYDELL CORP.
Pension Worksheet2010
General Journal Entries
Annual
OCIPrior
Pension
Service
Expense
Cash
Cost
0
120,000 Dr.
58,000 Dr.
61,200 Dr.
52,280 Cr.
17,000 Dr.
Pension
Asset/
Liability
13,800 Cr.
Memo Record
Projected
Benefit
Plan
Obligation
Assets
560,000 Cr.
546,200 Dr.
120,000 Cr.
680,000 Cr.
546,200 Dr.
58,000 Cr.
61,200 Cr.
52,280 Dr.
17,000 Cr.
65,000 Cr.
40,000 Dr.
83,920 Dr.
65,000 Cr. 103,000 Dr.
0
103,000 Dr.
65,000 Dr.
40,000 Cr.
759,200 Cr.
623,480 Dr.
121,920 Cr.
135,720 Cr.
50,000
Expected return on plan assets......................
Prior service cost amortization.......................
Pension expense for 2010................................
(b) Pension Expense......................................................
Cash....................................................................
Pension Asset /Liability....................................
Other Comprehensive Income (PSC)..............
(15,000)
8,000
$103,000
103,000
90,000
5,000
8,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-8
EXERCISE 20-2 (1015 minutes)
Computation of pension expense:
Service cost..............................................................
Interest cost ($700,000 X 10%)................................
Expected return on plan assets..............................
Prior service cost amortization...............................
Pension expense for 2010.......................................
$ 90,000
70,000
(64,000)
10,000
$106,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-9
Balance, January 1, 2010
Service cost
90,000 Dr.
Interest cost*
70,000 Dr.
Actual return**
64,000 Cr.
Amortization of PSC
10,000 Dr.
10,000 Cr.
Contributions
105,000 Cr.
Benefits
Journal entry for 2010***
106,000 Dr. 105,000 Cr. 10,000 Cr.
150,000 Dr.
Accumulated OCI, Dec. 31, 2009
Balance, Dec. 31, 2010
140,000 Dr.
60,000 Cr.
Memo Record
Projected
Benefit
Obligation
Plan Assets
700,000 Cr.
90,000 Cr.
70,000 Cr.
640,000 Dr.
64,000 Dr.
40,000 Dr.
105,000 Dr.
40,000 Cr.
820,000 Cr.
769,000 Dr.
9,000 Dr.
51,000 Cr.
*$70,000 = $700,000 X 10%.
**Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and
actual return differ, then an additional adjustment is made to compute the proper amount of pension expense.
***Pension Expense...................................................
***Pension Asset/Liability..........................................
Other Comprehensive Income (PSC)..........
Cash.....................................................................
106,000
9,000
10,000
105,000
EXERCISE 20-3 (1525 minutes)
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
Items
BICKNER COMPANY
Pension Worksheet2010
General Journal Entries
Annual
OCI
Pension
Prior Service
Pension
Expense
Cash
Cost
Asset/Liability
20-17
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
40,000 Dr.
39,200 Dr.
49,700 Cr.
25,000 Cr.
29,500 Dr.
25,000 Cr.
4,500 Cr.
4,500 Cr.
Memo Record
Projected
Benefit
Plan
Obligation
Assets
490,000 Cr.
490,000 Dr.
40,000 Cr.
39,200 Cr.
49,700 Dr.
25,000 Dr.
33,400 Dr.
33,400 Cr.
535,800 Cr.
531,300 Dr.
*$39,200 = $490,000 X .08.
**Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If
expected and actual return differ, then an additional adjustment is made to compute the proper
amount of pension expense.
EXERCISE 20-4 (1015 minutes)
20-18
Items
Balance, January 1, 2010
Service cost
Interest cost*
Actual return**
Contributions
Benefits
Journal entry, December 31
Balance, December 31, 2010
BOUDREAU INC.
Pension Worksheet2010
General Journal Entries
Annual
Pension
Pension
Asset /
Expense
Cash
Liability
EXERCISE 20-5 (1525 minutes)
Computation of Service-Years
Year
2010
2011
2012
2013
2014
2015
Jim
1
1
1
Paul
1
1
1
1
Nancy
1
1
1
1
1
3
4
5
Dave
1
1
1
1
1
1
6
Kathy
1
1
1
1
1
1
6
Total
5
5
5
4
3
2
24
Cost per service-year: $72,000 24 = $3,000
Computation of Annual Prior Service Cost Amortization
Year
Total
Service-Years
Cost Per
Service-Year
Annual
Amortization
2010
2011
2012
2013
2014
2015
5
5
5
4
3
2
$3,000
3,000
3,000
3,000
3,000
3,000
$15,000
15,000
15,000
12,000
9,000
6,000
$72,000
EXERCISE 20-6 (1015 minutes)
Computation of Actual Return on Plan Assets
Fair value of plan assets at 12/31/10........................
Fair value of plan assets at 1/1/10............................
Increase in fair value of plan assets........................
Deduct: Contributions to plan during 2010............
Less benefits paid during 2010.................
Actual return on plan assets for 2010......................
$2,725,000
2,400,000
325,000
$280,000
350,000
(70,000)
$ 395,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-12
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
Corridor and Minimum Loss Amortization
Year
Projected
Benefit
Obligation (a)
2009
2010
2011
2012
$2,000,000
2,400,000
2,950,000
3,600,000
Items
Balance, Dec. 31, 2009
Prior service cost
Balance, Jan. 1, 2010
Service cost
Interest cost*
Actual return**
Amortization of PSC
Contributions
Benefits
Journal entry for 2010
Accumulated OCI, Dec. 31, 2009
Balance, Dec. 31, 2010
Plan
Assets
10%
Corridor
$1,900,000
$200,000
2,500,000
250,000
2,600,000
295,000
RYDELL CORP.
3,000,000
360,000
Pension Worksheet2010
Annual
Pension
Expense
General Journal Entries
OCIPrior
Service
Cash
Cost
0
120,000 Dr.
58,000 Dr.
61,200 Dr.
52,280 Cr.
17,000 Dr.
Accumulated
OCI (G/L) (a)
$
0
280,000
367,000(c)
372,000(e)
Pension
Asset/
Liability
13,800 Cr.
Minimum
Amortization
of Loss
$
0
3,000(b)
6,000(d)
1,000(f)
EXERCISE 20-7 (1525 minutes)
20-20
EXERCISE 20-8 (2025 minutes)
Memo Record
Projected
Benefit
Plan
Obligation
Assets
560,000 Cr.
546,200 Dr.
120,000 Cr.
680,000 Cr.
546,200 Dr.
58,000 Cr.
61,200 Cr.
52,280 Dr.
17,000 Cr.
65,000 Cr.
40,000 Dr.
83,920 Dr.
65,000 Cr. 103,000 Dr.
0
103,000 Dr.
65,000 Dr.
40,000 Cr.
759,200 Cr.
623,480 Dr.
121,920 Cr.
135,720 Cr.
*$61,200 = $680,000 X .09.
**Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and
actual return differ, then an additional adjustment is made to compute the proper amount of pension expense.
(a)
(b)
(c)
(d)
(e)
(f)
As of the beginning of the year.
($280,000 $250,000) 10 years = $3,000
$280,000 $3,000 + $90,000 = $367,000
($367,000 $295,000) 12 years = $6,000
$367,000 $6,000 + $11,000 = $372,000
($372,000 $360,000) 12 years = $1,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
20-13