
Concept explainers
1.
Prepare necessary journal entries of Company F for 2019.
1.

Explanation of Solution
Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.
Prepare
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
January 1, 2019 | Other comprehensive income: Prior service cost | 80,000 | ||
Accrued/prepaid pension cost | 80,000 | |||
(To record the beginning liability for prior service cost for 2019) |
Table (1)
- Other comprehensive income: Prior service cost is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the other comprehensive income: Prior service cost account with $80,000.
- Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $80,000.
Prepare journal entry to record the pension expense for 2019:
In this case, Company F has underfunded the pension contribution by $12,000
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
December 31,2019 | Pension expense | 137,000 | ||
Cash | 125,000 | |||
Accrued/prepaid pension cost | 12,000 | |||
(To record the underfunded pension expense of $12,000) |
Table (2)
- Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $668,214.
- Cash is an asset account and it is decreased. Therefore, credit the cash account with $660,000.
- Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $8,214.
Prepare journal entry to record the amortized prior service cost for 2019:
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
December 31,2019 | Accrued/prepaid pension cost (1) | 8,000 | ||
Other comprehensive income: Prior service cost | 8,000 | |||
(To record the amortization of prior service cost) |
Table (3)
- Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $8,000.
- Other comprehensive income: Prior service cost is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the other comprehensive income: Prior service cost account with $8,000.
Working note (1):
Calculate the other comprehensive income: prior service cost for 2019.
Note: For accrued/prepaid pension cost no other adjustment is required. Because the credit balance of $124,000
2.
List the amounts that are to be reported on the
2.

Explanation of Solution
Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and
List the amounts that are to be reported on the balance sheet of company F as of December 31, 2019 as follows:
Company F | |
Balance sheet | |
As of December 31, 2019 | |
Liabilities: | Amounts ($) |
Accrued pension cost | 124,000 |
Shareholders’ Equity: | |
Accumulated Other Comprehensive Income: | |
Unrealized loss from underfunding prior service cost of pension plan (2) | 72,000 |
Table (4)
Working note (2):
Calculate the unrealized loss from underfunding prior service cost of pension plan for 2019:
3.
Prepare necessary journal entries of Company F for 2020.
3.

Explanation of Solution
Prepare journal entry to record the pension expense for 2020:
In this case, Company F has underfunded the pension contribution by $10,900
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
December 31,2020 | Pension expense | 152,900 | ||
Cash | 142,000 | |||
Accrued/prepaid pension cost | 10,900 | |||
(To record the underfunded pension expense of $10,900) |
Table (5)
- Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $152,900.
- Cash is an asset account and it is decreased. Therefore, credit the cash account with $142,000.
- Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $10,900.
Prepare journal entry to record the amortized prior service cost for 2020:
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
December 31, 2020 | Accrued/prepaid pension cost (1) | 8,000 | ||
Other comprehensive income: Prior service cost | 8,000 | |||
(To record the amortization of prior service cost) |
Table (6)
- Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $8,000.
- Other comprehensive income: Prior service cost is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the other comprehensive income: Prior service cost account with $8,000.
Note: For accrued/prepaid pension cost no other adjustment is required. Because the credit balance of $126,900
4.
List the amounts that are to be reported on the balance sheet of company F as of December 31, 2020 and also indicate the sections under which it would be reported.
4.

Explanation of Solution
List the amounts that are to be reported on the balance sheet of company F as of December 31, 2020 as follows:
Company F | |
Balance sheet | |
As of December 31, 2020 | |
Liabilities: | Amounts ($) |
Accrued pension cost | 126,900 |
Shareholders’ Equity: | |
Accumulated Other Comprehensive Income: | |
Unrealized loss from underfunding prior service cost of pension plan (3) | 64,000 |
Table (7)
Working note (3):
Calculate the unrealized loss from underfunding prior service cost of pension plan for 2020:
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Chapter 19 Solutions
Intermediate Accounting: Reporting and Analysis - With Access
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