Question

Lighthouse Co. sponsored a defined benefit plan, which included January 1, 2020, balances of $15,000 and...

Lighthouse Co. sponsored a defined benefit plan, which included January 1, 2020, balances of $15,000 and $14,800 in Plan Assets and Projected Benefit Obligation, respectively. During 2020, the company incurred $11,000 in service cost, made plan contributions of $3,310, and paid benefits to retirees for $1,900. The discount rate is 5% and the expected and actual rate of return on plan assets is 6%.

Given the information provided for the defined benefit plan, what is the amount recorded in the journal entry for the pension asset/liability account in 2020?  

Question 20 options:

$9,330

$7,530

$7,330

$7,828
Business   Accounting   
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Homework Answers

Answer #1

Calculation of Pension asset/liability account :

When the projected benefit obligation is higher or lower than the closing fair value of plan assets, the difference is known as Pension liability (assets)

Pension Liability (assets) = Plan assets - Projected benefit obligations(PBO)

Closing plan assets(CPA) = Opening plan assets + Actual return + contributions - benefits paid

CPA = $(15,000 + 900(6%) + 3,310 - 1,900= 17,310

Closing projected benefit obligation (CPBO) = Opening PBO + service cost + interest cost - benefits paid +/- changes in acturial assumptions

CPBO = $( 14,800 + 11,000 + 740 (5%)- 1,900= 24,640

Pension liability = CPBO-CPA = 24,640 - 17310 = 7,330

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