TAN Company has a defined benefit pension plan for its employees. The plan has been in existence
Question:
TAN Company has a defined benefit pension plan for its employees. The plan has been in existence for several years. During 2018, for the first time, TAN experienced a difference between its expected and actual projected benefit obligation. This resulted in a cumulative “experience” loss of $29,000 at the end of 2018, which it recorded and which did not change during 2019. TAN amortizes any excess loss by the straight-line method over the average remaining service life of its active participating employees. It has developed the following schedule concerning these 40 employees:
TAN makes its contribution to the pension plan at the end of each year. However, it has not always funded the entire pension expense in a given year. As a result, it had an accrued pension cost liability of $65,000 on December 31, 2018.
In addition to the preceding information, the following set of facts for 2019 and 2020 has been assembled, based on information provided by TAN’s actuary and funding agency, and obtained from its accounting records:
Required:
1. Calculate the average remaining service life of TAN’s employees. Compute to one decimal place.
2. Prepare a schedule to compute the net gain or loss component of pension expense for 2019 and 2020, assuming that the company uses the corridor approach. For simplicity, assume the average remaining life calculated in Requirement 1 is applicable to both years.
3. Prepare a schedule to compute the pension expense for 2019 and 2020.
4. Prepare all the journal entries related to TAN’s pension plan for 2019 and 2020.
5. What is TAN’s total accrued/prepaid pension cost at the end of 2019? Is it an asset or liability?
Step by Step Answer:
Intermediate Accounting Reporting and Analysis
ISBN: 978-1337788281
3rd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach