Journal entries for pensions plans; accounting Change and Error Analysis

See attached file.

Problem P20-9 Prepare worksheet and journal entries for pension plans.
Problem P22-2 How to create a comparative income statement.

P20-9
(Comprehensive 2 year Worksheet) Mount Co. has the following defined benefit pension plan balances
on January 1, 2006
Project benefit obligation 4,500,000
Fair value of plan assets 4,500,000
The interest(settlement) rate applicable to the plan is 10%. On January 1, 2007, the
company amends its pension agreement so that prior service costs of $600,000 are
created. Other data related to the pension plan are:
2007 2008
Service cost $150,000 $170,000
Unrecognized prior serevice costs amortization 0 90,000
Contribution(funding) to the plan 150,000 184,658
Benefits paid 220,000 280,000
Actual return on plan assets 252,000 250,000
Expected rate of return on assets 6% 8%

a) Prepare a pension plan worksheet for the pension plan in 2008

b) Prepare any journal entries related to the pension plan that would be need
at December 31, 2006

c) Preapre a pension plan worksheet for 2007 and any journal entries related
to the pension plan as of December 31, 2007

d) As of December 31, 2007, prepare a schedule reconciling the funded status
with the reported lliability(accrued penson cost)

P22-2
(Comprehensive Accounting Change and Error Analysis Problem) Larry Kingston Inc.
was organized in late 2005 to manufacture and sell hosiery. At the end of its forth
year of operation, the company has been fairly successful, as indicated by the
following reported nt income.
2005 $140,000 2007 $205,000
2006 160,000 2008 $276,000
Includes a $12,000 increase because of change in bad debt experience rate
Includes extraordinary of $40,000

The company has decided to expand operations and has applied for a sizabale blank
loan. The bank officer has indicated that the records should be audited and presented
in comparative statements to facilitate analysis by the bank. Larry Kingston Inc.
therefore hired the auditing firm of check & Doublecheck Co. and has provided the
following additional information.

1) In early 2006, Larry Kinston Inc. charged its estimate from 2% to 1% on the amount
of bad debt expense to be changed to operations. Bad debt expense for 2005, if a 1%
rate had been used, would have been $12,000. The company therefore restated its net
income for 2005.

2) In 2008, the auditor discovered that the company had changed its method of
inventory pricing from LIFO to FIFO. The effect on the income statements for the
previous years is as follows.
2005 2006 2007 2008
Net income unadjusted LIFO basis 140,000 160,000 205,000 276,000
Net income unadjusted FIFO basis 155,000 165,000 215,000 260,000
$15,000 $5,000 $10,000 ($16,000)

3) In 2008 the auditor discovered that
a) the company incorrectly overstated the ending inventory by $11,000 in 2007
b) a dispute develop in 2006 with the IRS over the deductibility of entertainmetn expenses.
In 2005, the company was not premitted these deductions, but a tax settlement was
reached in 2008 that allowed these expenses. As a result of the courts finding, tax
expenses in 2008 were reduced by $60,000

Instructions
a) Indicate how each of these changes or corrections should be handled in the
accounting records. Ignore income tax consideration

b) Present comparative income statements for the years 2005 to 2008, starting
with income before extraordinary items. Ignore income tax considerations.