Question

Travis Transportation reported a net loss-AOCI in last year's balance sheet. This year, the company revised...

Travis Transportation reported a net loss-AOCI in last year's balance sheet. This year, the company revised its estimate of future salary levels causing its PBO estimate to decline by $12. Also, the $24 million actual return on plan assets was less than the $27 million expected return.

Required:

1) Prepare the appropriate journal entries to record the gain and loss.
2) How do this gain and loss affect Travis' income statement, statement of comprehensive income, and balance sheet?

Homework Answers

Answer #1

Part 1

No.

Account titles and explanation

Debit

Credit

1

PBO

12

Gain – OCI

12

2

Loss – OCI (27-24)

3

Plan assets

3

Part 2

Income statement: No effect as pension gains and losses are deferred and not included directly included in the pension expense and thus no effect on net income.

Statement of comprehensive income: pension gains and losses are classified as other comprehensive income and thus reported in statement of comprehensive income. There is Gain – OCI of $12 million and Loss – OCI of $3 million

Balance sheet = PBO decreases by 12 million and plan assets decreases by $3 million. Overall effect of it is decrease in pension liability by 9 million.

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