Question

The accountant for Camberwell Ltd. has developed the following information regarding the company's defined benefit pension plan for calendar 2014:

Service cost $ 600,000

Actual return on plan assets 315,000

Contribution 1,080,000

Benefits paid to retirees 72,000

Interest (discount) rate 10%

The corporation uses the immediate recognition approach under ASPE.

Instructions

a. Using the above information, complete the pension work sheet below for 2014. Indicate credit entries by parentheses, e.g. (72,000).

b. Prepare the journal entries to reflect the accounting for the company's pension plan for the year ended December 31, 2014.

Answer 1

SOLUTION

A. Pension work sheet

	Annual pension expense	Cash	Net defined benefit asset/ Liability	Defined benefit obligation	Plan assets
Balance, Dec.31 2013			(1,200,000)	(4,500,000)	3,300,000
Service cost	600,000			(600,000)
Interest cost	450,000			(450,000)
Actual return	(315,000)				315,000
Contributions		(1,080,000)			1,080,000
Benefits paid				72,000	(72,000)
Expense entry	735,000		(735,000)
Contribution entry		(1,080,000)	1,080,000
Balance, Dec.31 2014			(855,000)	(5,478,000)	4,623,000

Interest cost = 4,500,000 * 10% = 450,000

B. Journal entries-

S.No.	General Journal	Debit ($)	Credit ($)
1.	Pension expense	735,000
	Net defined benefit liability/ Asset		735,000
2.	Net defined benefit liability/ Asset	1,080,000
	Cash		1,080,000