On January 1, 2017, Cello Co. established a defined benefit pension plan for its employees. At January

Question:

On January 1, 2017, Cello Co. established a defined benefit pension plan for its employees. At January 1, 2017, Cello estimated the service cost for 2017 to be $45,000. At January 1, 2018, it estimated 2018 service cost to be $49,000. On the plan inception date, prior service credit was granted to employees for five years, the period of time between the company's formation and plan inception. The prior service cost was estimated to be $650,000 at January 1, 2017. Cello uses a 10% discount rate and assumes a return on plan assets of 9%. The average remaining service life of employees is 20 years, and the company will fund at the end of each year an amount equal to service cost plus interest cost for 2017 and 2018.

On January 1, 2017, Cello Co. established a defined benefit

Required:
1. Compute the amount of prior service cost to be included as a component of pension expense for 2017.
2. Compute pension expense for 2017.
3. Compute the fair value of plan assets at December 31, 2017.
4. Compute the PBO balance at December 31, 2017.
5. Prepare the company's required journal entries to record the effects of its pension plan in 2017.
6. Repeat requirements 1 through 5 for 2018.
7. Prepare T-accounts for Pension asset (liability), OCI-prior service cost, and OCI-net actuarial (gain) loss to show the effects of the entries made in requirements 5 and 6. Label the effects.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Financial Reporting and Analysis

ISBN: 978-1259722653

7th edition

Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer

Question Posted: