70.2K

Verified Solution

Link Copied!

HRC Company sponsors a defined benefits pension plan to its employees. On January $1,2022,$ the balances related to pension plan were as follows:

Projected benefit obligation $($PBO$)$ $$2,600,000$

Fair value of plan assets $$2,500,000$

AOCI $$ Prior service cost $-0-$

AOCI $$ Net Loss $-0-$

The discount $($or settlement$)$ rate applicable to the plan is $10\%.$ Other data related to the pension plan are as follows:

$20222023$

Service cost $$150,000$ $$170,000$

Contributions $($funding$)$ to the plan $500,000880,000$

Benefits paid to retirees $220,000280,000$

Actual return on plan assets $150,000200,000$

Increase in PBO due to changes in actuarial assumptions $250,000-0-$

Expected return on plan assets $10\%10\%$

Average service life of all employees $10$ years

On January $1,2023,$ the company amends the pension agreement resulting in a prior service cost of $$260,000.$ The company uses straight$-$line amortization of prior service costs over the average remaining service life of the employees.

Required: Using the Excel template provided $($or you can use your own template as well$)$:

$1.$ Prepare Pension worksheet for the year $2022$ and $2023$ in Excel. Make sure to include all accompanying computations at the bottom of the worksheet $($such as amortization of gain$/$losses$).$

$2.$ Prepare the necessary journal entries for each year associated with the defined benefits pension plan for HRC$.$

$3.$ What different amount$($s$)/$ balances will be reported in the income statement and balance sheet at the end of year $2022$ and $2023?$

$4.$ Is the pension plan underfunded or overfunded at the end of $2023$ based on your computations?

$5.$ Based on your answer for requirement $4,$ does HRC needs to increase or decrease the contributions to the pension plan in future assuming no immediate changes in actuarial assumptions? Why?

$6.$ What journal entry would be recorded by HRC at the end of $2022$ and $2023,$ if it was a defined contributions plan instead of defined benefits pension plan with the contribution from employer of $$500,000$ and $$880,000$ in $2022$ and $2023$ respectively? Which of the two pension plans is a better choice for the HRC company and Why?

Answer & Explanation Solved by verified expert

See Answer