Jay Company has had a defined benefit pension plan for several years. At the beginning of 2019, Jay amended the plan; this amendment provided for increased benefits to employees based on services rendered in prior periods. The prior service cost related to this amendment totaled $88,000. As a result, the projected benefit obligation increased. Jay decided not to fund the increased obligation at the time of the amendment, but rather to increase its periodic year-end contributions to the pension plan. The following information for 2019 has been provided by Jay’s actuary and funding agency and obtained from a review of its accounting records: Projected benefit obligation (12/31) $808,090 Service cost 183,000 Discount rate 9% Cumulative net loss (1/1) 64,500 Company contribution to pension plan (12/31) 200,000 Projected benefit obligation (1/1)* 513,000 Plan assets, fair value (12/31) 698,000 Accrued pension cost (liability) (1/1) 33,000* Expected (and actual) return on plan assets 48,000 Plan assets, fair value (1/1) 480,000 Retirement benefits paid 30,000 *Before the increase of $88,000 due to the prior service cost from the amendment Jay decided to amortize the prior service cost and any excess cumulative net loss by the straight-line method over the average remaining service life of the participating employees. It has developed the following schedule concerning these 50 employees: Employee Expected Years Employee Expected Years Numbers of Future Service* Numbers of Future Service* 1–5 2 26–30 12 6–10 4 31–35 14 11–15 6 36–40 16 16–20 8 41–45 18 21–25 10 46–50 20 *Per employee Required: 1. Compute the average remaining service life and prepare a schedule to determine the amortization of the prior service cost of Jay for 2019. 2. Prepare a schedule to compute the net gain or loss component of pension expense for 2019. 3. Prepare a schedule to compute the pension expense for 2019. 4. Prepare all the journal entries related to Jay’s pension plan for 2019. 5. What is Jay’s total accrued/prepaid pension cost at the end of 2019? Is it an asset or liability?

Jay Company has had a defined benefit pension plan for several years. At the beginning of 2019, Jay amended the plan; this amendment provided for increased benefits to employees based on services rendered in prior periods. The prior service cost related to this amendment totaled $88,000. As a result, the projected benefit obligation increased. Jay decided not to fund the increased obligation at the time of the amendment, but rather to increase its periodic year-end contributions to the pension plan. The following information for 2019 has been provided by Jay’s actuary and funding agency and obtained from a review of its accounting records: Projected benefit obligation (12/31) $808,090 Service cost 183,000 Discount rate 9% Cumulative net loss (1/1) 64,500 Company contribution to pension plan (12/31) 200,000 Projected benefit obligation (1/1)* 513,000 Plan assets, fair value (12/31) 698,000 Accrued pension cost (liability) (1/1) 33,000* Expected (and actual) return on plan assets 48,000 Plan assets, fair value (1/1) 480,000 Retirement benefits paid 30,000 Before the increase of $88,000 due to the prior service cost from the amendment Jay decided to amortize the prior service cost and any excess cumulative net loss by the straight-line method over the average remaining service life of the participating employees. It has developed the following schedule concerning these 50 employees: Employee Expected Years Employee Expected Years Numbers of Future Service Numbers of Future Service* 1–5 2 26–30 12 6–10 4 31–35 14 11–15 6 36–40 16 16–20 8 41–45 18 21–25 10 46–50 20 *Per employee Required: 1. Compute the average remaining service life and prepare a schedule to determine the amortization of the prior service cost of Jay for 2019. 2. Prepare a schedule to compute the net gain or loss component of pension expense for 2019. 3. Prepare a schedule to compute the pension expense for 2019. 4. Prepare all the journal entries related to Jay’s pension plan for 2019. 5. What is Jay’s total accrued/prepaid pension cost at the end of 2019? Is it an asset or liability?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The following information for 2019 has been provided by Jay’s actuary and funding agency and obtained from a review of its accounting records:

Projected benefit obligation (12/31)	$808,090
Service cost	183,000
Discount rate	9%
Cumulative net loss (1/1)	64,500
Company contribution to pension plan (12/31)	200,000
Projected benefit obligation (1/1)*	513,000
Plan assets, fair value (12/31)	698,000
Accrued pension cost (liability) (1/1)	33,000*
Expected (and actual) return on plan assets	48,000
Plan assets, fair value (1/1)	480,000
Retirement benefits paid	30,000

*Before the increase of $88,000 due to the prior service cost from the amendment

Jay decided to amortize the prior service cost and any excess cumulative net loss by the straight-line method over the average remaining service life of the participating employees. It has developed the following schedule concerning these 50 employees:

Employee	Expected Years	Employee	Expected Years
Numbers	of Future Service*	Numbers	of Future Service*
1–5	2	26–30	12
6–10	4	31–35	14
11–15	6	36–40	16
16–20	8	41–45	18
21–25	10	46–50	20

*Per employee

Required:

1.	Compute the average remaining service life and prepare a schedule to determine the amortization of the prior service cost of Jay for 2019.
2.	Prepare a schedule to compute the net gain or loss component of pension expense for 2019.
3.	Prepare a schedule to compute the pension expense for 2019.
4.	Prepare all the journal entries related to Jay’s pension plan for 2019.
5.	What is Jay’s total accrued/prepaid pension cost at the end of 2019? Is it an asset or liability?

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