Pensions and Other Postretirement Benefits

| December 8, 2017

Complete the following exercise. Label each question clearly.Sonta Corp. provides a defined benefit pension plan for its employees.The balances below are on its books as of January 1, 2014.AccountBalancePlan assets$480,000Projected benefit obligation (PBO)$625,000Accumulated OCI (Prior Service Cost)$100,000** Prior Service Cost has a debit balance on January 1, 2014.The actuary has provided the following information:2014 Service cost$90,000Amortization of prior service cost $19,000Settlement rate9%Actual return on plan assets in 2014$57,000Unexpected loss from change in PBO due to actuarialpredictions’ change$76,000Contributions in 2014$99,000Benefits paid to retirees in 2014$85,000Required1. Use the spreadsheetPensionsto prepare a pension worksheet. On the pension worksheet, compute pension expense, pension asset/liability, projected benefit obligation, plan assets, prior service cost, and net gain or loss. Recall that settlement rate is 9%.2. Compute the same items as in (1), assuming that the settlement rate is now 7% and the expected rate of return is 10%. Hint: Simply change the interest cost to 7%; change actual/expected return to balance of plant asset on January 1, 2014*10%.3. Prepare the journal entry using the spreadsheetJournal Entriesto record pension expense in 2014.Indicate the reporting of the 2014 pension amounts in the income statement and balance sheet for Sonta Corp. using the spreadsheetPensions.

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