Question

On January 1, 2019, Parkway Company adopted a defined benefit pension plan. At that time, Parkway awarded retroactive benefits to its employees, resulting in a prior service cost of $2,180,000 on that date (which it did not fund). Parkway decided to amortize this cost by the straight-line method over the 16-year average remaining service life of its active participating employees. Parkway’s actuary and funding agency have also provided the following additional information for 2019 and 2020:

	2019	2020
Service cost	$340,000	$348,000
Projected benefit obligation (1/1)	2,180,000*	2,738,000
Plan assets (1/1)	0	670,000
Discount rate	10%	10%
Expected long-term (and actual) rate of return on plan assets	—	9%

*Due to the prior service cost

Parkway contributed $670,000 and $700,000 to the pension fund at the end of 2019 and 2020, respectively. There are no other components of Parkway’s pension expense. At the end of 2020, the projected benefit obligation was $3,359,800 and the fair value of the pension plan assets was $1,430,300.

Required:

1.	Compute the amount of Parkway’s pension expense for 2019 and 2020.
2.	Prepare all the journal entries related to Parkway’s pension plan for 2019 and 2020.
3.	What is the total accrued/prepaid pension cost at the end of 2020? Is it an asset or a liability?

CHART OF ACCOUNTSParkway CompanyGeneral Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
251	Accrued/Prepaid Pension Cost
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings
916	Other Comprehensive Income: Prior Service Cost

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
522	Pension Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Compute the amount of Parkway’s pension expense for 2019 and 2020.

	2019	2020
Pension expense

2. Prepare the entries to record prior service cost on January 1, 2019, and the pension expense and amortization of prior service costs on December 31, 2019 and 2020.

General Journal Instructions

PAGE 2019

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7

2. Prepare the entries to record prior service cost on January 1, 2019, and the pension expense and amortization of prior service costs on December 31, 2019 and 2020.

General Journal Instructions

PAGE 2020

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7

3. What is the total accrued/prepaid pension cost at the end of 2020?

Is it an asset or liability?

Answer 1