Question

Exercise 20-12 (Part Level Submission) Martinez Company received the following selected information from its pension plan trustee concerning the operation of the company’s defined benefit pension plan for the year ended December 31, 2020. January 1, 2020 December 31, 2020 Projected benefit obligation $1,522,000 $1,549,000 Market-related and fair value of plan assets 797,000 1,123,700 Accumulated benefit obligation 1,570,000 1,687,800 Accumulated OCI (G/L)—Net gain 0 (202,200 ) The service cost component of pension expense for employee services rendered in the current year amounted to $77,000 and the amortization of prior service cost was $117,800. The company’s actual funding (contributions) of the plan in 2020 amounted to $247,000. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of $1,178,000 on January 1, 2020. Assume no benefits paid in 2020.

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

b.  Prepare the journal entry to record pension expense and the employer's contribution to the pension plan in 2020.

c.  Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for Ferreri Company for the year 2020.

Answer 1

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

Particulars	Year 2020
Service Cost	$77,000
Interest on Projected Benefit obligations [$1,522,000 × 10%]	$152,200
Expected Return on Plan Assets [$797,000 × 10%]	($79,700)
Amortization of prior period cost	$117,800
Total Pension Expense	$267,300

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b.  Prepare the journal entry to record pension expense and the employer's contribution to the pension plan in 2020.

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c.  Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for Ferreri Company for the year 2020.