Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

Question

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Answer 1

Question

Chapter 19, Problem 9P

1.

To determine

Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

1.

Expert Solution

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.

(a) Prepare a schedule to calculate the amortization fraction for each year as follows:

Employee	Expected years of future service	Number of service years rendered in each year
Employee	Expected years of future service	2019	2020	2021	2022	2023	2024	Total
A	1	1
B	3	1	1	1
C	4	1	1	1	1
D	5	1	1	1	1	1
E	5	1	1	1	1	1
F	6	1	1	1	1	1	1
Total		6	5	5	4	3	1	24
Amortization fraction		6/24	5/24	5/24	4/24	3/24	1/24

Table (1)

(b) Prepare a schedule to calculate the amortization of the prior service cost as follows:

Year	Total prior service cost (A)	Amortization fraction (B)	Amortization to increase pension expense(C=A×B)	Remaining prior service cost (1)
2019	$1,200,000	6/24	$300,000	$900,000
2020	$1,200,000	5/24	$250,000	$650,000
2021	$1,200,000	5/24	$250,000	$400,000
2022	$1,200,000	4/24	$200,000	$200,000
2023	$1,200,000	3/24	$150,000	$50,000
2024	$1,200,000	1/24	$50,000	$ 0

Table (2)

Working note (1):

Calculate the reaming prior service cost.

Year	Beginning prior service cost (D)	Amortization to increase pension expense (E)	Remaining prior service cost (F=D−E)
2019	$1,200,000	$300,000	$900,000
2020	$900,000	$250,000	$650,000
2021	$650,000	$250,000	$400,000
2022	$400,000	$200,000	$200,000
2023	$200,000	$150,000	$50,000
2024	$50,000	$50,000	$ 0

Table (3)

Note: The remaining service cost for the previous year is considered as the beginning prior service cost for the current year.

2.

To determine

Prepare necessary journal entries of Company B for 2019 and 2020.

2.

Expert Solution

Explanation of Solution

Prepare journal entry to record the beginning liability for prior service cost for 2019:

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
January 1, 2019	Other comprehensive income: Prior service cost		1,200,000
	Accrued/prepaid pension cost			1,200,000
	(To record the beginning liability for prior service cost for 2019)

Table (4)

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 $1,200,000.
Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,200,000.

Prepare journal entry to record the pension expense for 2019:

In this case, Company B has underfunded the pension contribution by $27,000($877,000−$850,000), hence credit the accrued/prepaid pension cost account by $27,000.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2019	Pension expense (2)		877,000
	Cash			850,000
	Accrued/prepaid pension cost			27,000
	(To record the underfunded pension expense of $27,000)

Table (5)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $877,000.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $850,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $27,000.

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		300,000
	Other comprehensive income: Prior service cost			300,000
	(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 $300,000.
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 $300,000.

Prepare journal entry to record the pension expense for 2020:

In this case, Company B has underfunded the pension contribution by $1,930($831,930−$830,000), hence credit the accrued/prepaid pension cost account by $1,930.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2020	Pension expense (2)		831,930
	Cash			830,000
	Accrued/prepaid pension cost			1,930
	(To record the underfunded pension expense of $1,930)

Table (7)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $831,930.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $830,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,930.

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		250,000
	Other comprehensive income: Prior service cost			250,000
	(To record the amortization of prior service cost)

Table (8)

Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $92,000.
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 $92,000.

Working note (2):

Compute the pension expense for 2019 and 2020:

Particulars	2019	2020
Service cost	469,000	507,000
Add: Interest cost on projected benefit obligation	108,000	159,930
Less: Expected return on plan assets	$0	($85,000)
Add: Amortization of prior service cost	$300,000 (1)	$250,000 (1)
Pension expense	$877,000	$831,930

Table (9)

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Answer 2

Question

Chapter 19, Problem 9P

1.

To determine

Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

1.

Expert Solution

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.

(a) Prepare a schedule to calculate the amortization fraction for each year as follows:

Employee	Expected years of future service	Number of service years rendered in each year
Employee	Expected years of future service	2019	2020	2021	2022	2023	2024	Total
A	1	1
B	3	1	1	1
C	4	1	1	1	1
D	5	1	1	1	1	1
E	5	1	1	1	1	1
F	6	1	1	1	1	1	1
Total		6	5	5	4	3	1	24
Amortization fraction		6/24	5/24	5/24	4/24	3/24	1/24

Table (1)

(b) Prepare a schedule to calculate the amortization of the prior service cost as follows:

Year	Total prior service cost (A)	Amortization fraction (B)	Amortization to increase pension expense(C=A×B)	Remaining prior service cost (1)
2019	$1,200,000	6/24	$300,000	$900,000
2020	$1,200,000	5/24	$250,000	$650,000
2021	$1,200,000	5/24	$250,000	$400,000
2022	$1,200,000	4/24	$200,000	$200,000
2023	$1,200,000	3/24	$150,000	$50,000
2024	$1,200,000	1/24	$50,000	$ 0

Table (2)

Working note (1):

Calculate the reaming prior service cost.

Year	Beginning prior service cost (D)	Amortization to increase pension expense (E)	Remaining prior service cost (F=D−E)
2019	$1,200,000	$300,000	$900,000
2020	$900,000	$250,000	$650,000
2021	$650,000	$250,000	$400,000
2022	$400,000	$200,000	$200,000
2023	$200,000	$150,000	$50,000
2024	$50,000	$50,000	$ 0

Table (3)

Note: The remaining service cost for the previous year is considered as the beginning prior service cost for the current year.

2.

To determine

Prepare necessary journal entries of Company B for 2019 and 2020.

2.

Expert Solution

Explanation of Solution

Prepare journal entry to record the beginning liability for prior service cost for 2019:

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
January 1, 2019	Other comprehensive income: Prior service cost		1,200,000
	Accrued/prepaid pension cost			1,200,000
	(To record the beginning liability for prior service cost for 2019)

Table (4)

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 $1,200,000.
Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,200,000.

Prepare journal entry to record the pension expense for 2019:

In this case, Company B has underfunded the pension contribution by $27,000($877,000−$850,000), hence credit the accrued/prepaid pension cost account by $27,000.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2019	Pension expense (2)		877,000
	Cash			850,000
	Accrued/prepaid pension cost			27,000
	(To record the underfunded pension expense of $27,000)

Table (5)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $877,000.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $850,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $27,000.

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		300,000
	Other comprehensive income: Prior service cost			300,000
	(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 $300,000.
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 $300,000.

Prepare journal entry to record the pension expense for 2020:

In this case, Company B has underfunded the pension contribution by $1,930($831,930−$830,000), hence credit the accrued/prepaid pension cost account by $1,930.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2020	Pension expense (2)		831,930
	Cash			830,000
	Accrued/prepaid pension cost			1,930
	(To record the underfunded pension expense of $1,930)

Table (7)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $831,930.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $830,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,930.

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		250,000
	Other comprehensive income: Prior service cost			250,000
	(To record the amortization of prior service cost)

Table (8)

Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $92,000.
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 $92,000.

Working note (2):

Compute the pension expense for 2019 and 2020:

Particulars	2019	2020
Service cost	469,000	507,000
Add: Interest cost on projected benefit obligation	108,000	159,930
Less: Expected return on plan assets	$0	($85,000)
Add: Amortization of prior service cost	$300,000 (1)	$250,000 (1)
Pension expense	$877,000	$831,930

Table (9)

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Answer 3

Question

Chapter 19, Problem 9P

1.

To determine

Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

1.

Expert Solution

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.

(a) Prepare a schedule to calculate the amortization fraction for each year as follows:

Employee	Expected years of future service	Number of service years rendered in each year
Employee	Expected years of future service	2019	2020	2021	2022	2023	2024	Total
A	1	1
B	3	1	1	1
C	4	1	1	1	1
D	5	1	1	1	1	1
E	5	1	1	1	1	1
F	6	1	1	1	1	1	1
Total		6	5	5	4	3	1	24
Amortization fraction		6/24	5/24	5/24	4/24	3/24	1/24

Table (1)

(b) Prepare a schedule to calculate the amortization of the prior service cost as follows:

Year	Total prior service cost (A)	Amortization fraction (B)	Amortization to increase pension expense(C=A×B)	Remaining prior service cost (1)
2019	$1,200,000	6/24	$300,000	$900,000
2020	$1,200,000	5/24	$250,000	$650,000
2021	$1,200,000	5/24	$250,000	$400,000
2022	$1,200,000	4/24	$200,000	$200,000
2023	$1,200,000	3/24	$150,000	$50,000
2024	$1,200,000	1/24	$50,000	$ 0

Table (2)

Working note (1):

Calculate the reaming prior service cost.

Year	Beginning prior service cost (D)	Amortization to increase pension expense (E)	Remaining prior service cost (F=D−E)
2019	$1,200,000	$300,000	$900,000
2020	$900,000	$250,000	$650,000
2021	$650,000	$250,000	$400,000
2022	$400,000	$200,000	$200,000
2023	$200,000	$150,000	$50,000
2024	$50,000	$50,000	$ 0

Table (3)

Note: The remaining service cost for the previous year is considered as the beginning prior service cost for the current year.

2.

To determine

Prepare necessary journal entries of Company B for 2019 and 2020.

2.

Expert Solution

Explanation of Solution

Prepare journal entry to record the beginning liability for prior service cost for 2019:

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
January 1, 2019	Other comprehensive income: Prior service cost		1,200,000
	Accrued/prepaid pension cost			1,200,000
	(To record the beginning liability for prior service cost for 2019)

Table (4)

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 $1,200,000.
Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,200,000.

Prepare journal entry to record the pension expense for 2019:

In this case, Company B has underfunded the pension contribution by $27,000($877,000−$850,000), hence credit the accrued/prepaid pension cost account by $27,000.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2019	Pension expense (2)		877,000
	Cash			850,000
	Accrued/prepaid pension cost			27,000
	(To record the underfunded pension expense of $27,000)

Table (5)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $877,000.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $850,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $27,000.

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		300,000
	Other comprehensive income: Prior service cost			300,000
	(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 $300,000.
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 $300,000.

Prepare journal entry to record the pension expense for 2020:

In this case, Company B has underfunded the pension contribution by $1,930($831,930−$830,000), hence credit the accrued/prepaid pension cost account by $1,930.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2020	Pension expense (2)		831,930
	Cash			830,000
	Accrued/prepaid pension cost			1,930
	(To record the underfunded pension expense of $1,930)

Table (7)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $831,930.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $830,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,930.

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		250,000
	Other comprehensive income: Prior service cost			250,000
	(To record the amortization of prior service cost)

Table (8)

Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $92,000.
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 $92,000.

Working note (2):

Compute the pension expense for 2019 and 2020:

Particulars	2019	2020
Service cost	469,000	507,000
Add: Interest cost on projected benefit obligation	108,000	159,930
Less: Expected return on plan assets	$0	($85,000)
Add: Amortization of prior service cost	$300,000 (1)	$250,000 (1)
Pension expense	$877,000	$831,930

Table (9)

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Answer 4

Question

Chapter 19, Problem 9P

1.

To determine

Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

1.

Expert Solution

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.

(a) Prepare a schedule to calculate the amortization fraction for each year as follows:

Employee	Expected years of future service	Number of service years rendered in each year
Employee	Expected years of future service	2019	2020	2021	2022	2023	2024	Total
A	1	1
B	3	1	1	1
C	4	1	1	1	1
D	5	1	1	1	1	1
E	5	1	1	1	1	1
F	6	1	1	1	1	1	1
Total		6	5	5	4	3	1	24
Amortization fraction		6/24	5/24	5/24	4/24	3/24	1/24

Table (1)

(b) Prepare a schedule to calculate the amortization of the prior service cost as follows:

Year	Total prior service cost (A)	Amortization fraction (B)	Amortization to increase pension expense(C=A×B)	Remaining prior service cost (1)
2019	$1,200,000	6/24	$300,000	$900,000
2020	$1,200,000	5/24	$250,000	$650,000
2021	$1,200,000	5/24	$250,000	$400,000
2022	$1,200,000	4/24	$200,000	$200,000
2023	$1,200,000	3/24	$150,000	$50,000
2024	$1,200,000	1/24	$50,000	$ 0

Table (2)

Working note (1):

Calculate the reaming prior service cost.

Year	Beginning prior service cost (D)	Amortization to increase pension expense (E)	Remaining prior service cost (F=D−E)
2019	$1,200,000	$300,000	$900,000
2020	$900,000	$250,000	$650,000
2021	$650,000	$250,000	$400,000
2022	$400,000	$200,000	$200,000
2023	$200,000	$150,000	$50,000
2024	$50,000	$50,000	$ 0

Table (3)

Note: The remaining service cost for the previous year is considered as the beginning prior service cost for the current year.

2.

To determine

Prepare necessary journal entries of Company B for 2019 and 2020.

2.

Expert Solution

Explanation of Solution

Prepare journal entry to record the beginning liability for prior service cost for 2019:

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
January 1, 2019	Other comprehensive income: Prior service cost		1,200,000
	Accrued/prepaid pension cost			1,200,000
	(To record the beginning liability for prior service cost for 2019)

Table (4)

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 $1,200,000.
Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,200,000.

Prepare journal entry to record the pension expense for 2019:

In this case, Company B has underfunded the pension contribution by $27,000($877,000−$850,000), hence credit the accrued/prepaid pension cost account by $27,000.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2019	Pension expense (2)		877,000
	Cash			850,000
	Accrued/prepaid pension cost			27,000
	(To record the underfunded pension expense of $27,000)

Table (5)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $877,000.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $850,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $27,000.

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		300,000
	Other comprehensive income: Prior service cost			300,000
	(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 $300,000.
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 $300,000.

Prepare journal entry to record the pension expense for 2020:

In this case, Company B has underfunded the pension contribution by $1,930($831,930−$830,000), hence credit the accrued/prepaid pension cost account by $1,930.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2020	Pension expense (2)		831,930
	Cash			830,000
	Accrued/prepaid pension cost			1,930
	(To record the underfunded pension expense of $1,930)

Table (7)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $831,930.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $830,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,930.

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		250,000
	Other comprehensive income: Prior service cost			250,000
	(To record the amortization of prior service cost)

Table (8)

Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $92,000.
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 $92,000.

Working note (2):

Compute the pension expense for 2019 and 2020:

Particulars	2019	2020
Service cost	469,000	507,000
Add: Interest cost on projected benefit obligation	108,000	159,930
Less: Expected return on plan assets	$0	($85,000)
Add: Amortization of prior service cost	$300,000 (1)	$250,000 (1)
Pension expense	$877,000	$831,930

Table (9)

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Answer 5

Chapter 19, Problem 9P

1.

To determine

Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

1.

Expert Solution

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.

(a) Prepare a schedule to calculate the amortization fraction for each year as follows:

Employee	Expected years of future service	Number of service years rendered in each year
Employee	Expected years of future service	2019	2020	2021	2022	2023	2024	Total
A	1	1
B	3	1	1	1
C	4	1	1	1	1
D	5	1	1	1	1	1
E	5	1	1	1	1	1
F	6	1	1	1	1	1	1
Total		6	5	5	4	3	1	24
Amortization fraction		6/24	5/24	5/24	4/24	3/24	1/24

Table (1)

(b) Prepare a schedule to calculate the amortization of the prior service cost as follows:

Year	Total prior service cost (A)	Amortization fraction (B)	Amortization to increase pension expense(C=A×B)	Remaining prior service cost (1)
2019	$1,200,000	6/24	$300,000	$900,000
2020	$1,200,000	5/24	$250,000	$650,000
2021	$1,200,000	5/24	$250,000	$400,000
2022	$1,200,000	4/24	$200,000	$200,000
2023	$1,200,000	3/24	$150,000	$50,000
2024	$1,200,000	1/24	$50,000	$ 0

Table (2)

Working note (1):

Calculate the reaming prior service cost.

Year	Beginning prior service cost (D)	Amortization to increase pension expense (E)	Remaining prior service cost (F=D−E)
2019	$1,200,000	$300,000	$900,000
2020	$900,000	$250,000	$650,000
2021	$650,000	$250,000	$400,000
2022	$400,000	$200,000	$200,000
2023	$200,000	$150,000	$50,000
2024	$50,000	$50,000	$ 0

Table (3)

Note: The remaining service cost for the previous year is considered as the beginning prior service cost for the current year.

2.

To determine

Prepare necessary journal entries of Company B for 2019 and 2020.

2.

Expert Solution

Explanation of Solution

Prepare journal entry to record the beginning liability for prior service cost for 2019:

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
January 1, 2019	Other comprehensive income: Prior service cost		1,200,000
	Accrued/prepaid pension cost			1,200,000
	(To record the beginning liability for prior service cost for 2019)

Table (4)

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 $1,200,000.
Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,200,000.

Prepare journal entry to record the pension expense for 2019:

In this case, Company B has underfunded the pension contribution by $27,000($877,000−$850,000), hence credit the accrued/prepaid pension cost account by $27,000.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2019	Pension expense (2)		877,000
	Cash			850,000
	Accrued/prepaid pension cost			27,000
	(To record the underfunded pension expense of $27,000)

Table (5)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $877,000.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $850,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $27,000.

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		300,000
	Other comprehensive income: Prior service cost			300,000
	(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 $300,000.
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 $300,000.

Prepare journal entry to record the pension expense for 2020:

In this case, Company B has underfunded the pension contribution by $1,930($831,930−$830,000), hence credit the accrued/prepaid pension cost account by $1,930.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2020	Pension expense (2)		831,930
	Cash			830,000
	Accrued/prepaid pension cost			1,930
	(To record the underfunded pension expense of $1,930)

Table (7)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $831,930.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $830,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,930.

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		250,000
	Other comprehensive income: Prior service cost			250,000
	(To record the amortization of prior service cost)

Table (8)

Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $92,000.
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 $92,000.

Working note (2):

Compute the pension expense for 2019 and 2020:

Particulars	2019	2020
Service cost	469,000	507,000
Add: Interest cost on projected benefit obligation	108,000	159,930
Less: Expected return on plan assets	$0	($85,000)
Add: Amortization of prior service cost	$300,000 (1)	$250,000 (1)
Pension expense	$877,000	$831,930

Table (9)

Answer 6

Chapter 19, Problem 9P

1.

To determine

Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

1.

Expert Solution

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.

(a) Prepare a schedule to calculate the amortization fraction for each year as follows:

Employee	Expected years of future service	Number of service years rendered in each year
Employee	Expected years of future service	2019	2020	2021	2022	2023	2024	Total
A	1	1
B	3	1	1	1
C	4	1	1	1	1
D	5	1	1	1	1	1
E	5	1	1	1	1	1
F	6	1	1	1	1	1	1
Total		6	5	5	4	3	1	24
Amortization fraction		6/24	5/24	5/24	4/24	3/24	1/24

Table (1)

(b) Prepare a schedule to calculate the amortization of the prior service cost as follows:

Year	Total prior service cost (A)	Amortization fraction (B)	Amortization to increase pension expense(C=A×B)	Remaining prior service cost (1)
2019	$1,200,000	6/24	$300,000	$900,000
2020	$1,200,000	5/24	$250,000	$650,000
2021	$1,200,000	5/24	$250,000	$400,000
2022	$1,200,000	4/24	$200,000	$200,000
2023	$1,200,000	3/24	$150,000	$50,000
2024	$1,200,000	1/24	$50,000	$ 0

Table (2)

Working note (1):

Calculate the reaming prior service cost.

Year	Beginning prior service cost (D)	Amortization to increase pension expense (E)	Remaining prior service cost (F=D−E)
2019	$1,200,000	$300,000	$900,000
2020	$900,000	$250,000	$650,000
2021	$650,000	$250,000	$400,000
2022	$400,000	$200,000	$200,000
2023	$200,000	$150,000	$50,000
2024	$50,000	$50,000	$ 0

Table (3)

Note: The remaining service cost for the previous year is considered as the beginning prior service cost for the current year.

Answer 7

Chapter 19, Problem 9P

1.

To determine

Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

Answer 8

1.

Expert Solution

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.

(a) Prepare a schedule to calculate the amortization fraction for each year as follows:

Employee	Expected years of future service	Number of service years rendered in each year
Employee	Expected years of future service	2019	2020	2021	2022	2023	2024	Total
A	1	1
B	3	1	1	1
C	4	1	1	1	1
D	5	1	1	1	1	1
E	5	1	1	1	1	1
F	6	1	1	1	1	1	1
Total		6	5	5	4	3	1	24
Amortization fraction		6/24	5/24	5/24	4/24	3/24	1/24

Table (1)

(b) Prepare a schedule to calculate the amortization of the prior service cost as follows:

Year	Total prior service cost (A)	Amortization fraction (B)	Amortization to increase pension expense(C=A×B)	Remaining prior service cost (1)
2019	$1,200,000	6/24	$300,000	$900,000
2020	$1,200,000	5/24	$250,000	$650,000
2021	$1,200,000	5/24	$250,000	$400,000
2022	$1,200,000	4/24	$200,000	$200,000
2023	$1,200,000	3/24	$150,000	$50,000
2024	$1,200,000	1/24	$50,000	$ 0

Table (2)

Working note (1):

Calculate the reaming prior service cost.

Year	Beginning prior service cost (D)	Amortization to increase pension expense (E)	Remaining prior service cost (F=D−E)
2019	$1,200,000	$300,000	$900,000
2020	$900,000	$250,000	$650,000
2021	$650,000	$250,000	$400,000
2022	$400,000	$200,000	$200,000
2023	$200,000	$150,000	$50,000
2024	$50,000	$50,000	$ 0

Table (3)

Note: The remaining service cost for the previous year is considered as the beginning prior service cost for the current year.

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

2.

To determine

Prepare necessary journal entries of Company B for 2019 and 2020.

2.

Expert Solution

Explanation of Solution

Prepare journal entry to record the beginning liability for prior service cost for 2019:

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
January 1, 2019	Other comprehensive income: Prior service cost		1,200,000
	Accrued/prepaid pension cost			1,200,000
	(To record the beginning liability for prior service cost for 2019)

Table (4)

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 $1,200,000.
Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,200,000.

Prepare journal entry to record the pension expense for 2019:

In this case, Company B has underfunded the pension contribution by $27,000($877,000−$850,000), hence credit the accrued/prepaid pension cost account by $27,000.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2019	Pension expense (2)		877,000
	Cash			850,000
	Accrued/prepaid pension cost			27,000
	(To record the underfunded pension expense of $27,000)

Table (5)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $877,000.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $850,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $27,000.

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		300,000
	Other comprehensive income: Prior service cost			300,000
	(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 $300,000.
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 $300,000.

Prepare journal entry to record the pension expense for 2020:

In this case, Company B has underfunded the pension contribution by $1,930($831,930−$830,000), hence credit the accrued/prepaid pension cost account by $1,930.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2020	Pension expense (2)		831,930
	Cash			830,000
	Accrued/prepaid pension cost			1,930
	(To record the underfunded pension expense of $1,930)

Table (7)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $831,930.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $830,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,930.

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		250,000
	Other comprehensive income: Prior service cost			250,000
	(To record the amortization of prior service cost)

Table (8)

Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $92,000.
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 $92,000.

Working note (2):

Compute the pension expense for 2019 and 2020:

Particulars	2019	2020
Service cost	469,000	507,000
Add: Interest cost on projected benefit obligation	108,000	159,930
Less: Expected return on plan assets	$0	($85,000)
Add: Amortization of prior service cost	$300,000 (1)	$250,000 (1)
Pension expense	$877,000	$831,930

Table (9)

Answer 13

2.

To determine

Prepare necessary journal entries of Company B for 2019 and 2020.

Answer 14

2.

Expert Solution

Explanation of Solution

Prepare journal entry to record the beginning liability for prior service cost for 2019:

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
January 1, 2019	Other comprehensive income: Prior service cost		1,200,000
	Accrued/prepaid pension cost			1,200,000
	(To record the beginning liability for prior service cost for 2019)

Table (4)

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 $1,200,000.
Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,200,000.

Prepare journal entry to record the pension expense for 2019:

In this case, Company B has underfunded the pension contribution by $27,000($877,000−$850,000), hence credit the accrued/prepaid pension cost account by $27,000.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2019	Pension expense (2)		877,000
	Cash			850,000
	Accrued/prepaid pension cost			27,000
	(To record the underfunded pension expense of $27,000)

Table (5)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $877,000.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $850,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $27,000.

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		300,000
	Other comprehensive income: Prior service cost			300,000
	(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 $300,000.
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 $300,000.

Prepare journal entry to record the pension expense for 2020:

In this case, Company B has underfunded the pension contribution by $1,930($831,930−$830,000), hence credit the accrued/prepaid pension cost account by $1,930.

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31,2020	Pension expense (2)		831,930
	Cash			830,000
	Accrued/prepaid pension cost			1,930
	(To record the underfunded pension expense of $1,930)

Table (7)

Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $831,930.
Cash is an asset account and it is decreased. Therefore, credit the cash account with $830,000.
Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,930.

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		250,000
	Other comprehensive income: Prior service cost			250,000
	(To record the amortization of prior service cost)

Table (8)

Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $92,000.
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 $92,000.

Working note (2):

Compute the pension expense for 2019 and 2020:

Particulars	2019	2020
Service cost	469,000	507,000
Add: Interest cost on projected benefit obligation	108,000	159,930
Less: Expected return on plan assets	$0	($85,000)
Add: Amortization of prior service cost	$300,000 (1)	$250,000 (1)
Pension expense	$877,000	$831,930