Compute the amount of prior service cost

Assignment Help Financial Accounting

Reference no: EM132846460

Question 1 - On January 1, 2012, when its $30 par-value common stock was selling for $80 per share, Gierach Corporation issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par-value common stock. Cash settlement upon conversion is not permitted. The debentures were issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million.

On January 1, 2017, the company's $30 par-value common stock was split three for one. On January 1, 2018, when the company's $10 par-value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options.

Required -

1. Following U.S. GAAP, prepare journal entry to record the original issuance of the convertible debentures.

2. How much interest expense would the company recognize on the convertible debentures in 2015?

3. Prepare journal entry to record the exercise of the conversion option using the book value method.

4. Prepare the entry to record the exercise of the conversion option using the market-value method.

Question 2 - Turner Inc. provides a defined benefit pension plan to its employees. The company has 150 employees. The remaining amortization period at December 31, 2016, for prior service cost is 5 years. The average remaining service life of employees is 11 years at January 1, 2017, and 10 years at December 31, 2017. The AOCI-net actuarial (gain) loss was zero at December 31, 2016. Turner smooths recognition of its gains and losses when computing its market-related value to compute expected return.

Additional Information:

Description	12/31/2017	12/31/2016
PBO	1,450,000	1,377,000
ABO	1,425,000	1,350,000
Fair value of plan assets	1,395,000	1,085,000
Market-related value of plan assets (smoothed recognition)	1,369,000	1,085,000
AOCI-prior service cost	?	292,000
Balance sheet pension asset (liability)	?	(292,000)
Service cost	117,400
Contribution	169,000
PBO actuarial gain	113,250
Benefit payments made	None	None
Discount rate %	5	5
Expected rate of return %	7	7

Required -

1. Compute the amount of prior service cost that would be amortized as a component of pension expense for 2017 and 2018.

2. Compute the actual return on plan assets for 2017.

3. Compute the unexpected net gain or loss on plan assets for 2017.

4. Compute pension expense for 2017.

5. Prepare the company's required pension journal entries for 2017.

a. Prepare the entry to record the first three components of pension expense.

b. Prepare the entry to record the amortization of prior service cost.

c. Prepare the entry to record the contribution to the pension fund.

d. Prepare the entry to record the unexpected gain or loss on plan assets.

e. Prepare the entry to record the actuarial gain or loss on PBO.

6. Compute the 2017 increase/decrease in AOCI-net actuarial (gain) loss and the amount to be amortized in 2017 and 2018.

7. Confirm that the pension asset (liability) on the balance sheet equals the funded status as of December 31, 2017.

PBO

Fair value of plan assets

Funded Status

Pension Asset (liability)

Beginning balance

First Expense Entry

Contribution Entry

Asset Gain entry

PBO gain entry

Ending balance

Question 3 - A statement of cash flows for Friendly Markets, Inc., for 2017 appears below.

Operations

(1) Net income $1,161,442

Adjustments for noncash transactions:

(2) Depreciation and amortization 496,106

(3) Retirement contributions paid in common stock 256,110

(4) Deferred income taxes 27,018

(5) Loss on disposal of property, plant, and equipment 32,482

(6) Loss on sale of investments 6,801

(7) Net amortization of investments 15,625

Change in operating assets/liabilities providing (requiring) cash:

(8) Trade receivables (140,082)

(9) Merchandise inventories 2,302

(10) Prepaid expenses (5,825)

(11) Accounts payable and accrued expenses 103,014

(12) Self-insurance reserves (14,381)

(13) Federal and state income taxes 33,186

(14) Other noncurrent liabilities 24,434

Net cash provided by operating activities 1,998,232

Investing

(15) Payment for property, plant, and equipment (693,489)

(16) Proceeds from sale of property, plant, and equipment 4,150

(17) Payment for investments (1,133,449)

(18) Proceeds from sale of investments 777,381

Net cash used in investing activities (1,045,407)

Financing

(19) Payment for acquisition of common stock (629,453)

(20) Proceeds from sale of common stock 152,096

(21) Dividends paid (325,295)

(22) Other, net 18,530

Net cash used in financing activities (784,122)

Net increase in cash 168,703

Cash at beginning of year 201,813

Cash at end of year $ 370,516

Required - Prepare the worksheet entry that would be made to prepare cash flow statement for each of the numbered line items. For example, the worksheet entry for item (1) is as follows:

Cash (Operations-Net income) $1,161,442

Retained earnings $1,161,442

1. Prepare the add back of depreciation.

2. Prepare the entry for retirement contributions paid in stock add-back.

3. Prepare the entry for deferred tax add-back.

4. Prepare the entry for deferred tax add-back.

5. Prepare the entry for sale of investments.

6. Prepare the entry for amortization of investments add-back.

7. Prepare the entry for increase in accounts receivable.

8. Prepare the entry for the decrease in inventories.

9. Prepare the entry for increase in prepaid expenses.

10. Prepare the entry for the increase in accounts payable.

11. Prepare the entry for decrease in self assurance reserves.

12. Prepare the entry for increase in Federal and state income taxes.

13. Prepare the entry for increase in other non-current liabilities.

14. Prepare the entry for sale of property, plant and equipment.

15. Prepare the entry for acquisition of investments.

16. Prepare the entry for the purchase of common stock.

17. Prepare the entry for proceeds from sale of common stock.

18. Prepare the entry for the declaration and payment of dividends.

19. Prepare the entry for other cash realization.

Reference no: EM132846460

Questions Cloud

Compute the unit manufacturing cost of Type A and Type B : Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company's current overhead costing procedures

How do define imperialism : Is imperialism always colonialism? What is colonialism? Why colonialism? Do you know the different between direct rule and indirect rule?

Describe a topic have explored in depth in the history : Describe the ways that you have taken initiative this semester to complete course work, generate and pursue opportunities to expand your knowledge

How much of each product should be produced : How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.)

Compute the amount of prior service cost : Compute the amount of prior service cost that would be amortized as a component of pension expense for 2017 and 2018

How will consumers respond to ai-enabled marketing campaigns : How can organizations start experimenting with AI-enabled technology and How will consumers respond to AI-enabled marketing campaigns?

What is the correct net purchases from January to October : Sales returns and allowances (Nov. 1 to Dec. 31 per records) 90,000. What is the correct net purchases from January 1 to October 31

Critically evaluate your skills as a strategic learner : Critically evaluate your skills as a strategic learner - Write a reflective report about your learning experience as an undergraduate student over your term

What is the maximum amount the firm should spend : What is the maximum amount the firm should spend to reduce the cost of problems in that country by 96%

User Account

All Pages