Question

Pension data for Sam Adams Inc. include the following for the current calendar year:

Discount rate, 8%
Expected return on plan assets, 10%
Actual return on plan assets, 9%
Service cost, $400,000

January 1:
PBO	$	3,000,000
ABO		2,000,000
Plan assets		3,200,000
Amortization of prior service cost		30,000
Amortization of net gain		7,000
December 31:
Cash contributions to pension fund	$	275,000
Benefit payments to retirees		310,000
Required: 1. Determine pension expense for the year. 2. Prepare the journal entries to record pension expense and funding for the year. (two general journals)

Answer 1

1) Calculation of Pension Expense :-

Particulars	Amount($)
Service Cost	$400000
Add: Interest Cost ($3000000*8%)	$240000
Less : Expected Return ($3200000*10%)	($320000)
Add : Amortization of prior service cost	$30000
Less : Amortization of net gain	($7000)
Pension Expense	$343000

2) Journal Entries :-

Particulars	Debit($)	Credit($)
Pension Expense A /c Dr.	275000
To Cash A/c		275000
Pension Expense A/c Dr.	68000
To Prepaid Pension Cost A/c		68000