a) Water Inc. has the following balances at 1/1/10 that relate to its defined-benefit pension plan:
Plan Assets $800,000
Net Pension Asset 100,000
Accumulated OCI (PSC) 120,000
During 2010, the following additional data is available:
Service Cost for 2010 $75,000
Settlement rate 20%
Actual return on plan assets in 2010 65,000
Amortization of prior service cost 10,000
Expected return on plan assets 60,000
Unexpected loss from change in projected benefit 65,000
obligation, due to change in actuarial predictions
Contributions in 2010 90,000
Benefits paid to retirees in 2010 75,000
Compute pension expense for the year 2010 (15 points)
b) George Incorporated has the following balances as of the beginning of each year:
Year 2010 2011
PBO $1,700,000 2,300,000
Pension Asset (Liability) $(200,000) 100,000
In 2010 there is also a $200,000 opening balance in Accumulated OCI for unrecognized gains. The average remaining service life per employee in 2010 is 10 years, and in 2011 it is 12 years. The net gain or loss that occurred during each year is as follows:
Year 2010 2011
Gain (Loss) $(350,000) 400,000
Compute the net gain/loss that is amortized in each of the 2 years above. (10 points)
Question 8 – Chapter 14
XYZ Company is building a new baseball stadium at a cost of $3,000,000. It received a down payment of $500,000 from local businesses to support the project, and now needs to borrow $2,500,000 to complete the project. It therefore decides to issue $2,500,000 of 9%, 10-year bonds. These bonds were issued on January 1, 2010, and pay interest annually on each January 1, beginning 2011. The bonds yield 6%.
a) Prepare the journal entry to record the issuance of the bonds on January 1, 2010. (4 points)
b) Prepare a bond amortization schedule up to and including January 1, 2015, using the effective-interest method. (7 points)
c) Assume that on July 1, 2014, XYZ Company retires a half of the bonds at a cost of $1,000,000 plus accrued interest. Prepare the journal entry to record this retirement. (14 points)
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