Question

Burrito Corporation has a defined benefit pension plan. Burrito received the following information for the current calendar year:

Projected benefit obligation
Balance, January 1	$	4,100,000
Service cost		954,000
Interest cost		246,000
Benefits paid		(1,000,000	)
Balance, December 31
	$	4,300,000
Plan assets
Balance, January 1	$	4,000,000
Actual return on plan assets		450,000
Contribution		800,000
Benefits paid		(1,000,000	)
Balance, December 31
	$	4,250,000

The expected long-term return on plan assets is 12%. There were no other relevant data for the year.

Required:

1.	Determine Burrito's pension expense for the year.

      

2.	Prepare the journal entries to record the pension expense and funding for the year.

	Debit	Credit

3.

Determine the balance of the Prepaid/ Accrued Pension Cost account for the end of the year.

Answer 1

ANSWER

Req 1	Service Cost	954,000
	Interest Cost	246,000
	Expected return on the plan assets	(480,000)
	Pension Expense	$ 720,000
Req 2	Pension expense (calculated above)	$ 720,000
	Plan assets (expected return on plan assets)	$   480,000
	PBO ($954,000 service cost + $246,000 interest cost)		$ 1,200,000
	Plan assets	$ 800,000
	Cash (given)		$ 800,000
	PBO	$ 1,000,000
	Plan assets (given)		$ 1,000,000
	The following entry also would be required although it does not affect the pension expense or the plan asset funding:
	Plan Assets	$   154,000
	Gain - OCI		$   154,000

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