Question

Martinez Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2017 in which no benefits were paid.
1.The actuarial present value of future benefits earned by employees for services rendered in 2017 amounted to $56,100.

2.The company’s funding policy requires a contribution to the pension trustee amounting to $136,572 for 2017.

3.As of January 1, 2017, the company had a projected benefit obligation of $903,400, an accumulated benefit obligation of $799,600, and a debit balance of $401,800 in accumulated OCI (PSC). The fair value of pension plan assets amounted to $602,500 at the beginning of the year. The actual and expected return on plan assets was $54,400. The settlement rate was 8%. No gains or losses occurred in 2017 and no benefits were paid.

4.Amortization of prior service cost was $49,700 in 2017. Amortization of net gain or loss was not required in 2017.


Determine the amounts of the components of pension expense that should be recognized by the company in 2017. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Prepare the journal entry or entries to record pension expense and the employer’s contribution to the pension trustee in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Indicate the amounts that would be reported on the income statement and the balance sheet for the year 2017.

Answer 1

Answer: The amount of the component of pension expense (6,600) The journal entry To record company contribution to pension Dr : defined benefit pension liability $136,572,Cr: cash $136,572, to record pension expense Dr : pension expense $903,400, Cr : defined benefit pension liability $903,000, to adjust pension liability to fair value (OCI Dr: $401,800 Cr : Net defined benefit liability $401,800, Amount to be reported on the income statement $1,698,300, Amount to be reported on the balance sheet $(1,395,400)

Explanation:

To determine the amount of the component of pension expense

$

Accumulated benefit obligation 799,600

Add: Return on plan asset 48,200

----------------

847,800

Add:Amortization of prior service cost 49,000

-------------

896,800

Less:Projected benefit obligation. 903,400

---------------------

Pension expense balance. (6,600)

------------------------

Journal entry will be

To record company compensation to pension

Dr: defined benefit pension liability $136,572, Cr: cash $136,572

To record pension expense

Dr: pension expense $903,400, Cr: defined benefit pension liability $903,400

To adjust pension liability to fair value(OCI)

Dr :$401,800, Cr: Net defined benefit liability $401,800

To determine the amount of income statement

$

projected benefit obligation. 903,400

Add: Accumulated benefit. 799,600

--------------------

1,703,000

Less: expected return on plan asset. 54,400

-----------------

1,648,600

Add:Amortization of prior service cost. 49,700

-----------------

Balance to income statement. 1,698,300

----------------------

To determine the amount to balance sheet

$

Actuarial present value 56,100

Add: expected return on plan asset. 54,400

----------------

108,500

Less: projected benefit obligation. 903,400

------------------

(794,900)

Less: Fair value of plan pension asset. 602,500

-------------------

Balance to balance sheet. (1,395,400)

---------------------

The amount (1,395,400) will be recorded as asset in the balance sheet