ABC Corporation provides a defined benefit pension plan for its employees. A com
ID: 2574306 • 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.
Note: Use the summary entry method as demonstrated and discussed in the chapter lectures on pension accounting to prepare the adjusting entry.
Pension asset/liability (January 1) $0
Actual return on plan assets $40,000
Expected return on plan assets $20,000
Contributions (funding) in 2014 $37,000
Fair value of plan assets (December 31) $77,000
Settlement rate 10%
Projected benefit obligation (January 1) $0
Service cost $60,000
Benefits paid in 2014 $0
I came up with the following adjusting entries:
Pension Expense 40,000
Pension Related Asset 14,000
Other Comp. Income 17,000
Cash 37,000
Is this correct?
Explanation / Answer
Below adjusting entries are correct.
Pension Expense $40,000
(refer below workings)
Pension Related Asset $14,000
(balancing figure)
To Other Comp. Income $17,000
(Fair market value - Service cost)
To Cash $37,000
(contributions in 2014)
Opening Value pension asset 0 Add : Employee contribution in 2014 $37,000 Add: Actual return on plan asset $40,000 Less: Benefits paid 0 Fair market value of plan asset at the end of the year $77,000