Question

* Question 2

Martinez Company received the following selected information from its pension plan trustee concerning the operation of the company’s defined benefit pension plan for the year ended December 31, 2020. January 1, 2020 December 31, 2020 Projected benefit obligation $1,488,000 $1,514,000 Market-related and fair value of plan assets 809,000 1,135,900 Accumulated benefit obligation 1,600,000 1,718,800 Accumulated OCI (G/L)—Net gain 0 (198,800 ) The service cost component of pension expense for employee services rendered in the current year amounted to $76,000 and the amortization of prior service cost was $118,800. The company’s actual funding (contributions) of the plan in 2020 amounted to $246,000. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of $1,188,000 on January 1, 2020. Assume no benefits paid in 2020.

Determine the amounts of the components of pension expense that should be recognized by the company in 2020. (Enter amounts that reduce pension expense with either a negative sign preceding the number e.g. -45 or parenthesis e.g. (45).) Components of Pension Expense $

Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (To record pension expense and employer’s contribution)

Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for Martinez Company for the year 2020. Martinez Company Income Statement (Partial) $ $ Martinez Company Comprehensive Income Statement $XXXX $ $XXXX Martinez Company Balance Sheet (Partial) $ $

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Answer 1

(a)   Pension expense for 2017 composed of the following:

                Service cost.....................................................                       $ 76,000

                Interest on projected benefit obligation

                    (10% X $1,488,000)......................................                         148,800

                Expected return on plan assets

                    (10% X $809,000).........................................                          (80,900)

                Amortization of prior service cost...............                       118,800

                        Pension expense....................................                       $262,700

(b)   Pension Expense...................................................    262,700

        Pension Asset /Liability.........................................    300,900

                Cash..................................................................                         246,000

                Other Comprehensive Income (PSC).........                       118,800

                Other Comprehensive Income (G/L)...........                         198,800

                    (To record pension expense and

                     employer’s contribution)

(c)   Income Statement:

                Pension expense............................................                    $ 262,700

        Comprehensive Income Statement

                Net income.......................................................                    $       XXXX

                Other comprehensive income (loss)

                       Amortization of PSC................................ $118,800

                       Liability gain..............................................   198,800      317,600

        Comprehensive income........................................                     $     XXXX

        Balance Sheet:

                Liabilities

                        Pension liability.......................................                    $   378,100*

        Stockholders’ Equity

                Accumulated OCI (PSC)................................                    $1,069,200**

                Accumulated OCI (G/L)..................................                         198,800

*Projected benefit obligation, Dec. 31, 2017 $1,514,000

Plan assets, Dec. 31, 2017                               (1,135,900)

Pension liability                                                  $   378,100

**$1,188,000 – $118,800

	General Journal Entries                                                Memo Record
Items	Annual Pension Expense	Cash	OCI—Prior Service Cost	OCI— Gain/Loss	Pension Asset/Liability	Projected Benefit Obligation	Plan Assets
Balance, Jan. 1, 2017					679,000 Cr.	*1,488,000 Cr.	809,000 Dr.
Service cost	76,000 Dr.					76,000 Cr.
Interest cost*	148,800 Dr.					148,800 Cr.
Actual return**	80,900 Cr.						80,900 Dr.
Amortization of PSC	118,800 Dr.		118,800 Cr.
Liability gain				198,800 Cr.		198,800 Dr.
Contributions		246,000 Cr.					246,000 Dr.
Journal entry, for 2017	262,700 Dr.	246,000 Cr.	118,800 Cr.	198,800 Cr.	300,900 Dr.
Accumulated OCI, Dec. 31, 2016			1,188,000 Dr.	0
Balance, Dec. 31, 2017			1,069,200 Dr.	198,800 Cr.	378,100 Cr.	1,514,000 Cr.	1,135,900 Dr.

*$1,488,000 X 10%.

**Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and actual
returns differ, then an additional adjustment is made to compute the proper amount of pension expense.