Question

Exercise 20-04

The following facts apply to the pension plan of Vaughn Inc. for the year 2020.

Plan assets, January 1, 2020		$525,500
Projected benefit obligation, January 1, 2020		525,500
Settlement rate		8	%
Service cost		36,800
Contributions (funding)		23,800
Actual and expected return on plan assets		49,800
Benefits paid to retirees		30,300

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.)

VAUGHN INC. Pension Worksheet—2020
		General Journal Entries									Memo Record
Items		Annual Pension Expense			Cash			Pension Asset/ Liability			Projected Benefit Obligation			Plan Assets
Balance, January 1, 2020		$enter a net debit or credit balance	select between debit and credit Dr.Cr.		$enter a net debit or credit balance	select between debit and credit Dr.Cr.		$enter a net debit or credit balance	select between debit and credit Dr.Cr.		$enter a net debit or credit balance	select between debit and credit Dr.Cr.		$enter a net debit or credit balance	select between debit and credit Dr.Cr.
Service cost		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.
Interest cost		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.
Actual return		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.
Contributions		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.
Benefits		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.		enter a dollar amount	select between debit and credit Dr.Cr.
Journal entry, December 31		$enter a net debit or credit amount	select between debit and credit Dr.Cr.		$enter a net debit or credit amount	select between debit and credit Dr.Cr.		enter a net debit or credit amount	select between debit and credit Dr.Cr.		enter a net debit or credit amount	select between debit and credit Dr.Cr.		enter a net debit or credit amount	select between debit and credit Dr.Cr.
Balance, December 31, 2020								$enter a net debit or credit balance	select between debit and credit Dr.Cr.		$enter a net debit or credit balance	select between debit and credit Dr.Cr.		$enter a net debit or credit balance	select between debit and credit Dr.Cr.

Answer 1

Answer is as follows:

Pension Worksheet:

Items	General Journal Entries		Memo Record
Annual Pension Expense	Cash	Pension Asset/ Liability		Projected Benefit Obligation	Plan Assets
Balance Jan 1, 2020	-	-	-		525500 Cr	525500 Dr
(a) Service Cost	36800Dr	-	-		36800Cr	-
(b)Interest Cost (the beginning defined benefit obligation multiplied by the discount rate of 8%)	42040Dr	-	-		42040Cr	-
(c) Annual Return	49800Cr	-	-		-	49800Dr
(d) Contributions	-	23800Cr	-		-	23800Dr
(e) Benefits	-	-	-		30300Dr	30300Cr
Journal Entry for 2020(Net total of above all items)	29040Dr	23800Cr	5240Cr*
Balance Dec 31, 2020(Net total of above all items)			5240Cr**		574040Cr	568800Dr

* 29040-23800=5240

** 574040-568800 = 5240

Therefore, The Pension Expence for the year 2020 is $29040

The Pension Expense Journal Entry to be recorded on December 31, 2020 is

Pension Expense Dr 29040

To Cash 23800

To Pension Asset/ Liability 5240

The credit to Pension Asset/Liability for $5240 represents the difference between pension expense of $29040 and the amount funded of $23800. Pension Asset/ Liability (credit) is a liability because Vaughn Inc. underfunds the plan by $5240. The Pension Asset/Liability account balance of $5240 also equals the net of the balances in the memo accounts. ie, 574040- 568800 = $5240.

The Year end Balance in related pension accounts are:

Pension Asset/ Liability = $5240Cr

Projected Benefit Obligation = $574040Cr and

Plan Assets = $568800Dr