Question

Madoff Company sponsors a defined-benefit pension plan for its employees. On January 1, 2017, the following balances
related to this plan.
Plan assets (fair value) $650,000
Projected benefit obligation 675,000
Pension asset/liability 25,000 Cr.
Prior service cost 120,000
OCI – Loss 72,000
As a result of the operation of the plan during 2017, the actuary provided the following additional data at Dec 31, 2017.
Service cost for 2017 $32,000
Actual return on plan assets in 2017 35,000
Amortization of prior service cost 5,025
Contributions in 2017 45,000
Benefits paid retirees in 2017 28,000
Settlement rate 6%
Expected return rate 5%
Average remaining service life of active employees 20 years

(a) Compute pension expense for Madoff Company for the year 2017 by preparing a pension worksheet

b) Prepare the journal entry for pension expense

Answer 1

Answer :

Madoff Company

Pension worksheet 2017

-	Annual pension expenses	Cash	Pension Asset/Liability	OCI PSC	OCI Gain /Loss	PBO	Plan Assets
Balance 01.01.2017	-	-	(25,000)	-	-	(675,000)	650,000
Service cost	32,000	-	-	-	-	(32,000)	-
Interest cost	40,500	-	-	-	-	(40,500)	-
Actual expected return	(35,000)	-	-	-	-	-	35,000
Lsss : Adjustement	(2,500)	-	-	-	2,500	-	-
PSC Amortization	5,025	-	-	(5,025)	-	-	-
Amortization of loss	450	-	-	-	(450)	-	-
Contribution	-	(45,000)	-	-	-	-	45,000
Benefit paid	-	-	-	-	-	28,000	(28,000)
Balance Jan	40,475 Dr	45,000 Cr	7,500 Dr	5,025 Cr	2,050 Dr	719,500 Cr	702,000 Dr

Calculations :

Interest cost = (0.06*675,000)

Adjustment = (0.05*650,000 - 35,000)

= (2,500)

(b).

Year	Projected benefit obligation	Value of 1/1 plan assets	10% corridor	Accumulated OCI	Minimum Amortization loss
2017	6,75,000	650,000	67,500	72,000	$450 (72,500 -67,000 / 10 )

S.No	Accounts and Explanation	Debit	Credit
-	Pension Expense	40,475	-
-	Pension Asset / Liability	7,500	-
-	Other comprehensive income (G/L)	2,050	-
-	To Other comprehensive income (PSC)	-	5,025
	To Cash	-	45,000