Question

Baron Company adopted a defined benefit pension plan on January 1, 2015. The following information pertains to the pension plan for 2016 and 2017:

	2016	2017
Service cost	$120,000	$130,000
Projected benefit obligation (1/1)	90,000	219,000
Plan assets (1/1)	90,000	223,000
Company contribution (funded 12/31)	124,000	140,000
Discount rate	10%	10%
Expected long-term (and actual) rate of return on plan assets	10%	10%

There are no other components of Baron’s pension expense.

Required:

1.	Compute the amount of Baron’s pension expense for 2016 and 2017.
2.	Prepare the journal entries to record the pension expense for 2016 and 2017.

Answer 1

ANSWER

Part 1			2016	2017
		Service cost	$        120,000	$        130,000
	Add:	Interest cost ($90,000 x 10%)/ ($219,000 x 10%)	9,000	21,900
	Less:	Expected return on plan assets ($90,000 x 10%) / (223,000 x 10%)	(9,000)	-22,300
		Pension expense	$        120,000	$        129,600
Part 2	Since the company funds $124,000 in 2016, it records the following journal entry on December 31, 2016:
	Dec 31, 2016	Pension Expense	$        120,000
		Accrued/Prepaid Pension Cost	$ 4,000
		Cash		$        124,000
	Since the company funds $140,000 in 2016, it records the following journal entry on December 31, 2017:
	Dec 31, 2017	Pension Expense	$        129,600
		Accrued/Prepaid Pension Cost	$            10,400
		Cash		$        140,000

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