Question

On January 1, 2020, Sage Company has the following defined benefit pension plan balances.

Projected benefit obligation$4,571,000

Fair value of plan assets4,210,000

The interest (settlement) rate applicable to the plan is 10%. On January 1, 2021, the company amends its pension agreement so that prior service costs of $492,000 are created. Other data related to the pension plan are as follows.

2020

2021

Service cost

$152,000 $179,000

Prior service cost amortization

0 89,000

Contributions (funding) to the plan

236,000 285,000

Benefits paid

198,000 275,000

Actual return on plan assets

252,600 261,000

Expected rate of return on assets

6% 8%

Q. Prepare a pension worksheet for the pension plan for 2020 and 2021

Q. For 2021, prepare the journal entry to record pension-related amounts.

Answer 1

Pension worksheet shows movements in pension through annual pension expense, cash, other comprehensive income to prior service cost, gains/ losses, pension asset/ liability and projected benefit obligation.

Pension worksheet-2020
Items	Annual Pension Expense	Cash	OCI Prior Service Cost	OCI Gains\Losses	Pension Asset/ Liability	Projected Benefit Obligation	Plan Assets
(General Journal Entries)	(General Journal Entries)	(General Journal Entries)	(General Journal Entries)	(General Journal Entries)	(General Journal Entries)	(Memo Record)	(Memo Record)
Balance, January 1, 2020					$361,000	$4,571,000	$4,210,000
Prior Service Cost			$492,000			492,000
Service cost	152000					152,000
Interest cost	457,100					457,100
	($4,571,000 x 0.10)
Expected Return	-252,600						252,600
	($4,210,000 x 0.06)
Amortization of PSC
Contributions		-236,000					236,000
Benefits						-198,000	-198,000
Journal entry for 2020	$356,500	($236,000)	$492,000	$0	($612,500)
Accumulated OCI, Dec. 31, 2019			0
Balance, Dec. 31, 2020			$492,000		$973,500	$5,474,100	$4,500,600
Pension worksheet - 2021
Items	Annual Pension Expense	Cash	OCI Prior Service Cost	OCI Gains\Losses	Pension Asset/ Liability	Projected Benefit Obligation	Plan Assets
(General Journal Entries)	(General Journal Entries)	(General Journal Entries)	(General Journal Entries)	(General Journal Entries)	(General Journal Entries)	(Memo Record)	(Memo Record)
Balance, January 1, 2021					$973,800	$5,474,100	$4,500,600
Service cost	$179,000					179,000
Interest cost	547410					547,410
	($5,474,100 x 0.10)
Expected Return	-360,048						360,048
	($4,500600 x 0.08)
Unexpected Gain\loss				$99,048			-99,048
				($261,000 - $360,048)
Amortization of PSC	89,000		-89,000
Contributions		-285,000					285,000
Benefits						-275,000	-275,000
Journal entry for 2021	$455,362	($285,000)	($89,000)	$99,048	($180,410)
Accumulated OCI, Dec. 31, 2020			$492,000
Balance , Dec 31, 2021			$403,000	$99,048	$793,390	$5,925,510	$4,771,600

The required journal entry would be

	Pension expense	455,362
	Other comprehensive income- Gains/Losses	99048
	Cash		285,000
	Other comprehensive income		89,000
	Pension liability		180,410
	(To record pension expense and contributions for the year)