Question

Splish Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2020, 2021, and 2022.

		For Year Ended December 31,
		2020		2021		2022
Plan assets (fair value)		$50,000		$85,000		$180,200
Accumulated benefit obligation		44,700		165,300		289,100
Projected benefit obligation		60,000		200,400		326,100
Net (gain) loss (for purposes of corridor calculation)		0		78,800		83,971
Employer’s funding contribution (made at end of year)		50,000		60,000		105,100

There were no balances as of January 1, 2020, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company’s pension obligation was 13% in 2020, 11% in 2021, and 8% in 2022. The service cost component of net periodic pension expense amounted to the following: 2020, $60,000; 2021, $85,000; and 2022, $118,000. The average remaining service life per employee is 12 years. No benefits were paid in 2020, $30,000 of benefits were paid in 2021, and $18,400 of benefits were paid in 2022 (all benefits paid at end of year).

Partially correct answer iconYour answer is partially correct.

Calculate the amount of net periodic pension expense that the company would recognize in 2020, 2021, and 2022. (Round answers to 0 decimal places, e.g. 2,525.)

Pension expense for 2020		$
Pension expense for 2021		$
Pension expense for 2022		$

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List of Accounts

Partially correct answer iconYour answer is partially correct.

Prepare the journal entries to record net periodic pension expense, employer’s funding contribution, and related pension amounts for the years 2020, 2021, and 2022. (Round answers to 0 decimal places, e.g. 2,525. 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.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2022

Answer 1

Splish Toothpaste Company
	Pension Expense
Working		2020	2021	2022
	Service Cost(Given)	$               60,000	$                 85,000	$               1,18,000
(A)	Interest on Projected Benefit obligation=(Projected benefit*Settlement Rate)	$                         -	$                    6,600	$                   16,032
(B)	Expected Return on Plan asets=(Plan Assets*Actual Return on plan assets)	$                         -	$                  -5,000	$                   -8,500
(D )	Amortization of net gain/loss	$                         -	$                           -	$                     4,897
	Amortization of prior service cost	$                         -	$                           -	$                            -
	Pension Expense	$               60,000	$                 86,600	$               1,30,429
	Year	2020	2021	2022
	Projected Benefit obligation	$                         -	$                 60,000	$               2,00,400
	Plan Assets		$                 50,000	$                   85,000
(C )	Corridor		$                    6,000	$                   20,040
	Accumulated OCI(G/L)			$                   78,800
(D )	Minimum Amortization of gain/loss			$                     4,897
(A)	Interest on Projected Benefit Obligation
	Year	2021	2022
	Projected Benefit Obligation=(A)	$         60,000.00	$        2,00,400.00
	Settlement Rate=(B)(Given)	11%	8%
	Interest on Projected Benefit Obligation=(A)*(B)	$            6,600.00	$           16,032.00
(B)	Expected Return on Plan Assets
	Year	2021	2022
	Plan Assets=(A)	$         50,000.00	$           85,000.00
	Actual /Expected return on plan assets=(B)	10%	10%
	Expected return on Plan Assets=(A)*(B)	$            5,000.00	$              8,500.00
Corridor
(C )	Year	2021	2022
	Plan Assets=(A)	$         50,000.00	$           85,000.00
	Projected Benefit obligation=(B)	$         60,000.00	$        2,00,400.00
	10% * (Excess of A or B)	$            6,000.00	$           20,040.00
Minimum Amortization of gain/loss
		2022
(D )	Accumulated OCI(G/L)=(A)	$               78,800
	Corridor=(B)	$               20,040
	The average remaining life per employee is=(C )	12
	Minimum Amortization of gain/loss=(A-B)/(C )	$                  4,897
Note:	Beginning balance would be considered for all calculations
Year	Account Title & Explanation	Debit	Credit
Dec 31 2020	Pension Expense	$               60,000
	To Cash(Employer's funding contribution)		$           50,000.00
	To Pension Assets/Pension liability		$           10,000.00
Dec 31 2021	Pension Expense	$               86,600
	Other comprehensive income(Gain/loss)	$               78,800
	To Cash(Employer's funding contribution)		$           60,000.00
	To Pension Assets/Pension liability		$        1,05,400.00
Dec 31 2022	Pension Expense	$            1,30,429
	Other comprehensive income(Gain/loss)(As per Calculation below)	$                  5,171
	To Cash(Employer's funding contribution)		$              1,05,100
	To Pension Assets/Pension liability		$                 30,500
	Calculation of Other comprehensive income(Gain/loss)
	Net Gain/loss in 2022=(A)(Given)	$         83,971.00
	Net gain/loss in 2021=(B)(Given)	$         78,800.00
	Excess loss=(A)-(B)	$            5,171.00