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CH 20 - In-class pension accounting example

CH 20 - In-class pension accounting example - IN-CLASS...

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IN-CLASS PENSION ACCOUNTING EXAMPLE FACTS: 2007 2008 2009 Service cost 400,000 420,000 432,000 Interest rate on PBO 10% 10% 10% Expected return of pension trust assets 11% 11% 11% Actual return of pension fund assets 0 81,000 170,520 Prior service cost 200,000 Actuarial liability increase 500,000 Employer contribution made at year end 675,000 685,000 700,000 Benefits paid at year end 20,000 20,000 Average remaining service life 20 20 20 Requirement: Record the effects of the above facts in the accounts of the company and also show how the pension plan's balance sheet is affected. The textbook refers to this as a "pension worksheet."
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IN-CLASS PENSION ACCOUNTING EXAMPLE SOLUTION GENERAL JOURNAL ENTRIES OF COMPANY MEMO RECORD Accumulated other Annual comprehensive income Pension Pension Pension PS Actuarial asset/ Plan Benefit expense Cash costs gain/loss liability assets Obligation 2007 Prior service costs (1) 200,000 (200,000) (200,000) Service cost (2) 400,000 (400,000) (400,000) Interest cost (2) 20,000 (20,000) (20,000) Amortize PSC (2) 10,000 (10,000) Contribution to plan (3) (675,000) 675,000 675,000 2007 total 430,000 (675,000) 190,000 0 55,000 675,000 (620,000) 2008 Service cost (2) 420,000 (420,000) (420,000) Interest cost (2) 62,000 (62,000) (62,000)
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