Question

Carla Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2020 in which no benefits were paid.

1.		The actuarial present value of future benefits earned by employees for services rendered in 2020 amounted to $55,500.
2.		The company’s funding policy requires a contribution to the pension trustee amounting to $144,729 for 2020.
3.		As of January 1, 2020, the company had a projected benefit obligation of $908,100, an accumulated benefit obligation of $802,100, and a debit balance of $400,100 in accumulated OCI (PSC). The fair value of pension plan assets amounted to $601,200 at the beginning of the year. The actual and expected return on plan assets was $54,100. The settlement rate was 9%. No gains or losses occurred in 2020 and no benefits were paid.
4.		Amortization of prior service cost was $50,500 in 2020. Amortization of net gain or loss was not required in 2020.

Determine the amounts of the components of pension expense that should be recognized by the company in 2020.

(Should be a a table that shows the components of pension expense)

Prepare the journal entry or entries to record pension expense and the employer’s contribution to the pension trustee in 2020.

Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for Carla Company for the year 2020.
[Need Income Statement (partial), Comprehensive Income Statement, and Balance Sheet (partial)]

Answer 1

1. Components of Pension Expense

Service Cost $55,500

Interest on Projected Benefit Obligation ($908,100 * 9%) $81,729

Expected Return on Plan Assets ($54,100)

Amortization of Prior Service Cost (PSC)    $50,500

Pension Expense $133,629

2. Journal entry or entries to record pension expense and the employer’s contribution to the pension trustee in 2020.

Pension Expense a/c Dr $133,629 (calculated above)

Pension Asset a/c Dr   $61,600 (difference)

To cash a/c $144,729 (given in question)

  To Other Comprehensive Income (PSC) a/c $50,500 (amortization of PSC from prior entry)

3. Pension-related amounts that would be reported on the income statement and balance sheet

Carla Company Income Statement and Comprehensive Income statement (Partial) For the year ended December 31, 2020

Revenue	XXX
Total Revenue		XXX
Expenses	XXX
Pension expense	$133,629
Total expenses		XXX
Net Income		XXX
Other comprehensive income:
Amortization of prior service cost	$50,500
Other comprehensive income		XXX
Comprehensive Income		XXX

Carla Company Comprehensive Income Statement For the year ended December 31, 2020

ASSETS	Amount	LIABILITIES	Amount
Current Assets		Current Liabilities	XXX
Accounts receivable	XXX	Long-term Liabilities
Inventory	XXX	Pension Liability	$245,300 (see calculation below)
Non-current Assets		Stockholders equity
PP&E	XXX	Accumulated Other Comprehensive Income (PSC)	$349,600 (see calculation below)
Total Assets	XXX	Total liabilities	XXX

Accumulated OCI (PSC) Jan. 1, 2020 $400,100

Amortization of prior service cost    ($50,500)

Accumulated OCI (PSC) Dec. 31, 2020   $ 349,600

	Plan Assets	Projected Benefit Obligation (PBO)
Balance on Jan 1, 2020	$601,200	$ 908,100
Service cost		$55,500
Interest on PBO		$81,729
Actual return	$54,100
Contribution	$144,729
Balance on December 31, 2020	$800,029	$1,045,329

Pension liability = Projected benefit obligation - Plan Assets = 1,045,329 - 800,029 = $245,300