On January 1, 2019, Smith Company adopted a defined benefit pension plan. At that time, Smith awarded retroactive benefits to its employees, resulting in a prior service cost that created a projected benefit obligation of $1,250,000 on that date (which it did not fund). Smith decided to amortize the prior service cost by the straight-line method over the 20-year average remaining service life of its active participating employees. Smith’s actuary has also provided the following additional information for 2019 and 2020: (1) service cost: 2019, $145,000; 2020, $152,000; (2) expected (and actual) return on plan assets: 2020, $33,000; and (3) projected benefit obligation: 1/1/2020, $1,530,000. The discount rate was 10% in both 2019 and 2020. Smith contributed $330,000 and $350,000 to the pension fund at the end of 2019 and 2020, respectively. There are no other components of Smith’s pension expense. Required: 1. Compute the amount of Smith’s pension expense for 2019 and 2020. 2. Prepare all the journal entries related to Smith’s pension plan for 2019 and 2020. 3. Next Level If the prior service cost was vested, explain how Smith’s pension expense for 2019 would be different under amended IAS 19.
On January 1, 2019, Smith Company adopted a defined benefit pension plan. At that time, Smith awarded retroactive benefits to its employees, resulting in a prior service cost that created a projected benefit obligation of $1,250,000 on that date (which it did not fund). Smith decided to amortize the prior service cost by the straight-line method over the 20-year average remaining service life of its active participating employees. Smith’s actuary has also provided the following additional information for 2019 and 2020: (1) service cost: 2019, $145,000; 2020, $152,000; (2) expected (and actual) return on plan assets: 2020, $33,000; and (3) projected benefit obligation: 1/1/2020, $1,530,000. The discount rate was 10% in both 2019 and 2020. Smith contributed $330,000 and $350,000 to the pension fund at the end of 2019 and 2020, respectively. There are no other components of Smith’s pension expense. Required: 1. Compute the amount of Smith’s pension expense for 2019 and 2020. 2. Prepare all the journal entries related to Smith’s pension plan for 2019 and 2020. 3. Next Level If the prior service cost was vested, explain how Smith’s pension expense for 2019 would be different under amended IAS 19.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On January 1, 2019, Smith Company adopted a defined benefit pension plan. At that time, Smith awarded retroactive benefits to its employees, resulting in a prior service cost that created a projected benefit obligation of $1,250,000 on that date (which it did not fund). Smith decided to amortize the prior service cost by the straight-line method over the 20-year average remaining service life of its active participating employees. Smith’s actuary has also provided the following additional information for 2019 and 2020: (1) service cost: 2019, $145,000; 2020, $152,000; (2) expected (and actual) return on plan assets: 2020, $33,000; and (3) projected benefit obligation: 1/1/2020, $1,530,000. The discount rate was 10% in both 2019 and 2020. Smith contributed $330,000 and $350,000 to the pension fund at the end of 2019 and 2020, respectively. There are no other components of Smith’s pension expense.
Required:
| 1. | Compute the amount of Smith’s pension expense for 2019 and 2020. |
| 2. | Prepare all the |
| 3. | Next Level If the prior service cost was vested, explain how Smith’s pension expense for 2019 would be different under amended IAS 19. |
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