Question

Pharoah 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		$1,483,000		$1,511,000
Market-related and fair value of plan assets		797,000		1,130,700
Accumulated benefit obligation		1,583,000		1,700,800
Accumulated OCI (G/L)—Net gain		0		(198,300	)

The service cost component of pension expense for employee services rendered in the current year amounted to $78,000 and the amortization of prior service cost was $117,800. The company’s actual funding (contributions) of the plan in 2020 amounted to $254,000. 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.

- Determine the amounts of the components of pension expense that should be recognized by the company in 2020. (Enter amounts that reduce pension expense with either a negative sign preceding the number e.g. -45 or parenthesis e.g. (45).

- Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2020

- Indicate the pension-related amounts that would be reported on the income statement partial, comprehensive income statement, and the balance sheet partial for Pharoah Company for the year 2020.

Answer 1

Answer:

Compute Components of Pension Expense as follows:

Particulars	2020 ($)
Service Cost	78,000
Interest on Projected Benefit Obligation ($1,483,000*10%)	148,300
Expected Return on Plan Assets ($797,000*10%)	(79,700)
Amortization of prior period cost	117,800
Total Pension Expense	$264,400

Journal Entry to record pension expense for the year ended 2020 as follows:-

	General Journal
Date	Account Title and Explanation	Debit ($)	Credit ($)
2020	Pension Expense	264,400
	Pension Asset (Bal. Fig.)	305,700
	Cash		254,000
	Other Comprehensive Income (PSC)		117,800
	Other Comprehensive Income (G/L)		198,300
	(To record pension expense for the year 2020)

Pharoah Company

Income Statement (Partial)

For the year 2020

Expenses:
Pension Expenses	$264,400

Pharoah Company

Comprehensive Income Statement

For the year 2020

Net Income		XXXX
Other Comprehensive Income (Loss):-
Amortization of PSC	$117,800
Liability Gain	$198,300
		$316,100
Comprehensive Income		XXXX

Pharoah Company

Balance Sheet (Partial)

For the Year 2020

Particulars	Amount ($)
Assets:
Cash	-254,000
Pension Asset	305,700
Total	51,700
Liabilities:
Equity:
OCI LOss (PSC)	117,800
OCI Loss (G/L)	198,300
Retained Earnings	-264,400
Total	51,700