Question

1. The following amounts are associated with Rockhill Farms Company’s pension plan for the year 2020:
   
   Plan Assets Jan 1, 2020:                   $750,000
   Projected benefit obligation Jan 1, 2020:     750,000
   Settlement rate                                                5%
   Service Cost                                          56,000
   Contributions                                         20,000
   Actual and expected returns on assets     50,000
   Benefits paid to retirees                         62,000
   
   What is the journal entry for the 2020 pension expense? Show your work.
   
   
   1. Debit- Pension Expense $43,500, Credit- Pension Liability $23,500, Cash $20,000
   2. Debit- Pension Expense $43,500, Credit- Pension Liability $6,000, Cash $37,500
   3. Debit- Pension Expense $105,500, Credit- Pension Liability $85,500, Cash $20,000
   4. Debit- Pension Expense $105,500, Credit- Pension Liability $69,000, Cash $37,500

b.)

Java Coffee Roasters has the following balances related to its pension on December 31, 2020:

Projected benefit obligation

$960,000

Plan assets at fair value

1,210,000

Accumulated OCI

450,000

What is the appropriate accounting recognition of the pension on the balance sheet? Explain your answer.

a. A pension liability

b. A pension asset

c. Disclosed only

d. No recognition

c.)

Sheridan Company amended its pension plan on January 1, 2020 and granted $450,000 of prior

service costs to its employees. The employees are expected to provide 9,000 service years with 900

service years in 2020. Compute the prior service cost amortization. Show work and explain your answer.

a. $50,000

b. $45,000

c. $9,000

d. $900

Answer 1

Ans.

Calculation of the amount of pension expense:

Particulars	Amount
Pension Expenses
Service Cost	$   56,000.00
Interest Cost ($ 750,000 * 5%)	$   37,500.00
Less: Actual Return	$ (50,000.00)
Pension Expenses	$   43,500.00

Journal Entry  for the 2020 pension expense.

Particulars	Debit	Credit
Pension Expenses	$    43,500.00
Cash		$ 20,000.00
Pension Liability		$ 23,500.00

So correct ans is A.

Debit- Pension Expense $43,500, Credit- Pension Liability $23,500, Cash $20,000

2.

Projected benefit obligation = $960,000

Less : Plan assets = $ ( 1,210,000)

Pension Asset = $ 250,000

So correct ans is B. A pension asset

3.

Cost Per service Year = $450,000 / 9,000 years = $ 50

The prior service cost amortization = 900 Years * $ 50 = $ 45,000

So the correct ans is B. $ 45,000