
(1)
Pension expense: Pension expense is an expense to the employer paid as compensation after the completion of services performed by the employees.
Pension expense includes the following components:
- Service cost
- Interest cost
- Expected return on plan assets
- Amortization of prior service cost
- Amortization of net loss or net gain
To journalize: Entries related to pension expense, funding, gains and losses, and retiree benefits paid
(1)

Explanation of Solution
Journalize the entry related to pension expense.
Date | Account Titles and Explanation | Post Ref. | Debit | Credit | |
($ in Millions) | |||||
15.2 | |||||
Pension Expense | 43.0 | ||||
Plan Assets | 27.0 | ||||
Projected Benefit Obligation (PBO) | 65.0 | ||||
Amortization of Prior Service Cost–OCI | 2.4 | ||||
Amortization of Net Loss–OCI | 0.6 | ||||
Income Tax Expense | 17.2 | ||||
(To record pension expense) |
Table (1)
- Deferred Tax Asset is an asset account. Tax expense is recorded on expense for which the tax deduction is available in future. To record this tax benefit, which is accounted as the tax expense payment in advance, this account is debited.
- Pension Expense is an expense account. Expenses decrease Equity value, and a decrease in equity is debited.
- Plan Assets is an asset account. The return on assets increases plan assets, and an increase in assets is debited.
- PBO is a liability account. Service cost and interest cost increase PBO, and an increase in liability is credited.
- Amortization of Prior Service Cost–OCI is a contra to Prior Service Cost–OCI account. Since amortization reduces prior service cost balance, it is credited because Prior Service Cost–OCI account is debited.
- Amortization of Net Loss–OCI is a contra to Net Loss–OCI account. Since amortization reduces net loss balance, it is credited because Net Loss–OCI account is debited.
- Income Tax Expense is an expense account. Since tax expense is reduced for accounting purposes, tax expense is credited.
Working Notes:
Compute the deferred tax asset amount allocated.
Compute the income tax expense amount allocated.
Note: Refer to the illustration 17-2 given in the textbook for the values of service cost, interest cost, and expected return on plan assets.
Journalize the entry related to funding the plan assets.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
Plan Assets | 48,000,000 | ||||
Cash | 48,000,000 | ||||
(To record plan assets being funded) |
Table (2)
- Plan Assets is an asset account. Since cash is contributed to plan assets, assets are increased, and an increase in assets is debited.
- Cash is an asset expense account. Since cash is contributed by the company, asset amount is decreased and a decrease in asset is credited.
Journalize the entry for the reduction in income taxes payable on the portion of the plan assets realized.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
Income Taxes Payable | 19,200,000 | ||||
Deferred Tax Asset | 19,200,000 | ||||
(To record reduction in income taxes payable) |
Table (3)
- Income Taxes Payable is a liability account. Since the tax expense is recognized in advance, the future tax liability is reduced, and a reduction in liability is debited.
- Deferred Tax Asset (DTA) is an asset account. Since the tax expense which is paid in advance is recognized, asset is reduced and a reduction in asset is credited.
Working Notes:
Compute the deferred tax asset amount allocated.
Journalize the amount of pension paid to retirees.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
PBO | 38,000,000 | ||||
Plan Assets | 38,000,000 | ||||
(To record the pension being paid and liability reduced) |
Table (4)
- PBO is a liability account. Since the pension benefits are paid to retirees, the liability to pay decreases, and a decrease in liability is debited.
- Plan Assets is an asset account. Since cash is paid to retirees, assets are decreased, and a decrease in assets is credited.
Journalize the gains and losses related to pension obligation.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
Deferred Tax Asset (DTA) | 9,200,000 | ||||
Loss–OCI | 13,800,000 | ||||
Projected Benefit Obligation (PBO) | 23,000,000 | ||||
(To record loss related to PBO) |
Table (5)
- Deferred Tax Asset is an asset account. The tax expense is recorded on loss on PBO for which the tax deduction is available in future. To record this tax benefit, which is accounted as the tax expense payment in advance, this account is debited.
- Loss–OCI is a loss or expense account. Losses and expenses decrease shareholders’ equity, and a decrease in shareholders’ equity is debited.
- PBO is a liability account. Losses increase DBO, and an increase in liability is credited.
Working Notes:
Compute the deferred tax asset amount allocated.
Journalize the entry related to loss (gain) on plan assets of pension cost.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
Plan Assets | 3,000,000 | ||||
Gain–OCI | 1,800,000 | ||||
|
1,200,000 | ||||
(To record gain on plan assets) |
Table (6)
- Plan Assets is an asset account. The loss on return on assets decreases plan assets, and a decrease in assets is credited.
- Gain–OCI is a loss or expense account. Gains and revenues increase shareholders’ equity, and an increase in shareholders’ equity is credited.
- Deferred Tax Liability is a liability account. The tax expense is recorded on gain on plan assets for which the tax should be paid in future. To record this accrued tax, which is accounted as the tax expense to be paid in future, this account is credited.
Working Notes:
Compute the deferred tax liability amount allocated.
(2)
To prepare: Statement of Comprehensive Income for G Communications for the year ended December 31, 2018.
(2)

Explanation of Solution
Prepare Statement of Comprehensive Income for G Communications for the year ended December 31, 2018.
G Communications | ||
Statement of Comprehensive Income | ||
Year Ended December 31, 2018 | ||
Net income | $300.000,000 | |
Other comprehensive income: | ||
Net unrealized holding gain on investments ($30,000,000, net of $12,000,000 tax) |
$18,000,000 | |
Loss on pensions–PBO estimate ($23,000,000, net of $9,200,000 tax) |
(13,800,000) | |
Gain on pensions–return on plan assets ($3,000,000, net of $1,200,000 tax) |
1,800,000 | |
Reclassification: Amortization of prior service cost ($1,000,000, net of $400,000 tax) |
600,000 | |
Reclassification: Amortization of net loss ($4,000,000, net of $1,600,000 tax) |
2,400,000 | 9,000,000 |
Comprehensive income | $309,000,000 |
Table (7)
Working Notes:
Compute the tax on net unrealized gain on investments.
Refer to Equations (1) and (2) for value and computation of tax on loss on PBO, and gain on pension plan assets.
Compute the tax on amortization of prior service cost.
Compute the tax on amortization of net loss.
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Chapter 17 Solutions
Loose Leaf Intermediate Accounting
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