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In: Accounting

Baron Company adopted a defined benefit pension plan on January 1, 2015. The following information pertains...

Baron Company adopted a defined benefit pension plan on January 1, 2015. The following information pertains to the pension plan for 2016 and 2017:

2016

2017

Service cost $150,000 $160,000
Projected benefit obligation (1/1) 112,500 269,250
Plan assets (1/1) 112,500 275,750
Company contribution (funded 12/31) 156,500 170,000
Discount rate 6% 6%
Expected long-term (and actual) rate of return on plan assets 6% 6%

There are no other components of Baron’s pension expense.

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Expert Solution

Part 1 2016 2017
Service cost $        150,000 $        160,000
Add: Interest cost ($112500 x 6%)/ ($269250 x 6%)              6735 16155
Less: Expected return on plan assets ($112500 x 6%) / (275750 x 6%)            (6735) (16545)
Pension expense $        150,000 $        159,610
Part 2 Since the company funds $156500 in 2016, it records the following journal entry on December 31, 2016:
Dec 31, 2016 Pension Expense $        150,000
Accrued/Prepaid Pension Cost $ 6,500
Cash $        156500
Since the company funds $170,000 in 2016, it records the following journal entry on December 31, 2017:
Dec 31, 2017 Pension Expense $        159,610
Accrued/Prepaid Pension Cost $ 10,390
Cash $        170,000

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