Question

Exercise 20-04

The following facts apply to the pension plan of Sheridan Inc. for the year 2020. Plan assets, January 1, 2020 $528,000 Projected benefit obligation, January 1, 2020 528,000 Settlement rate 8 % Service cost 43,400 Contributions (funding) 26,600 Actual and expected return on plan assets 51,600 Benefits paid to retirees 35,600 Using the preceding data, compute pension expense for the year 2020.

As part of your solution, prepare a pension worksheet that shows the journal entry for pension expense for 2020 and the year-end balances in the related pension accounts. (Enter all amounts as positive.)

Answer 1

Answer:

(a)

Sheridan Inc. Pension Worksheet-2020
General Journal Entries	Memo Record
Items	Annual Pension Expense	Cash	Pension Asset/ Liability	Defined Benefit Obligation	Plan Assets
Balance, January 1, 2020				528000 Cr.	528000 Dr.
(a) Service cost	43400 Dr.			43400 Cr.
(b) Interest cost	42240 Dr.(528,000*8%)			42240 Cr.
(c) Actual return*	51600 Cr.				51600 Dr.
(d) Contributions		26600 Cr.			26600 Dr.
(e) Benefits	­­­­­­­­­­­­­­­­­­­________	________		35600 Dr.	35600 Cr.
Journal entry, December 31	34040 Dr.	26600 Cr.	7440 Cr.	________	________
Balance, December 31, 2020			7440 Cr.	578040 Cr.	570600 Dr.

(b)   

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

Pension Expense .................................................. 34040
Pension Asset/Liability ................................ 7440
Cash .............................................................. 26600