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) $75,000 Settlement rate 10% Projected benefit obligation (January 1) $0 Service cost $60,000 Benefits paid in 2014 $0 *For purposes of financial statement presentation, consider Pension Expense as an operating item and any resulting Pension Asset/Liability as long-term in nature. I am seeing 2 different answers for this question, can anyone help with correct answer?

Answer 1

Calculation of pension Expense:

Service Cost	60000
Add: Interest Costs	0
Less: Return on Plan Asset	-40000
Add: Prior Service Cost	0
Net Pension Expense	20000

Pension Obligation (Liability) :

Beginning PBO	0
Add: Service Cost	60000
Add: Interest Costs	0
Add: Prior Service Cost	0
Less: Benefits Paid to Employees	0
Ending PBO	60000

Plan Asset :

Beginning Plan Asset	0
Add: Contribution of Current Year	37000
Add: Return on plan Asset	40000
Less: Benefits Paid to Employee	0
Ending Plan Asset	77000

Journal Entries:

Recording Pension Expense:

Net Pension Expense DR 20000

To, Pension Liability 20000

Any Difference between Actual and Expected Returns is Deferred in A.OCI.

Net Pension Expense DR 20000

To, Accumulated OCI 20000

Record contribution to Pension Plan

Pension Asset DR 37000

To, Cash 37000