In: Accounting
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.
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 |