ABC Corporation provides a defined benefit pension plan for its employees. A com
ID: 2451234 • Letter: A
Question
ABC Corporation provides a defined benefit pension plan for its employees. A combination adjusting entry should be made to correctly account for this type of pension plan given the following items of information for the 2014 plan year, including the recording of pension expense and the employer's contribution to the pension plan in 2014. Pension asset/liability (January 1) $0, Actual return on plan assets $40,000, Expected return on plan assets $20,000, Contributions (funding) in 2014 $35,000, Fair value of plan assets (December 31) $75,000, Settlement rate 10%, Projected benefit obligation (January 1) $0, Service cost $60,000, and Benefits paid in 2014 $0
Explanation / Answer
Pension expense = Service cost – Actual return + Deferred gain
= $60,000 - $40,000 + $20,000
= $40,000
Projected benefit obligation = Service cost
= $60,000
Fair value of pension fund = Actual return + Contribution
= $40,000 + $35,000
= $75,000
Pension related asset/liability = Projected benefit obligation – Fair value of pension fund
= $60,000 - $75,000
= -$15,000
The required journal entries are as below:
Date
Account titles
P.ref
Debit
Credit
2014
Pension expense
$40,000
Pension-related Asset/Liability
$15,000
Accumulated other comprehensive income
$55,000
To record journal for pension expense.
2014
Pension-related Asset/Liability
$35,000
Cash
$35,000
To record pension fund contribution
Date
Account titles
P.ref
Debit
Credit
2014
Pension expense
$40,000
Pension-related Asset/Liability
$15,000
Accumulated other comprehensive income
$55,000
To record journal for pension expense.
2014
Pension-related Asset/Liability
$35,000
Cash
$35,000
To record pension fund contribution