ACCT – Water Inc and XYZ Company Solution

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Description

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 rate20%
Actual return on plan assets in 201065,000
Amortization of prior service cost10,000
Expected return on plan assets60,000
Unexpected loss from change in projected benefit 65,000
obligation, due to change in actuarial predictions
Contributions in 201090,000
Benefits paid to retirees in 201075,000
Required:
Compute pension expense for the year 2010(15 points)

b) George Incorporated has the following balances as of the beginning of each year:
Year20102011
PBO$1,700,0002,300,000
Pension Asset (Liability)$(200,000)100,000

In 2010 there is also a $200,000 opening balance in Accumulated OCI for unrecognizedgains. The average remaining service life per employee in 2010 is 10 years, and in 2011 itis 12 years. The net gain or loss that occurred during each year is as follows:
Year20102011
Gain (Loss)$(350,000)400,000

Required:
Compute the net gain/loss that is amortized in each of the 2 years above.(10 points)

XYZ Company is building a new baseball stadium at a cost of $3,000,000. It received a downpayment 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-yearbonds. These bonds were issued on January 1, 2010, and pay interest annually on each January 1,beginning 2011. The bonds yield 6%.
Required:
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 theeffective-interest method.(7 points)
Date
Cash Paid
Interest Expense
Discounted Amortization
Carrying
Amount
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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