Question

Headland Company provides the following selected information related to its defined benefit pension plan for 2020.

Pension asset/liability (January 1)		$27,200	Cr.
Accumulated benefit obligation (December 31)		397,500
Actual and expected return on plan assets		10,900
Contributions (funding) in 2020		150,600
Fair value of plan assets (December 31)		795,300
Settlement rate		10	%
Projected benefit obligation (January 1)		701,900
Service cost		79,530

Partially correct answer iconYour answer is partially correct.

Compute pension expense.

Pension expense for 2020

$

Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2020. Preparation of a pension worksheet is not required. Benefits paid in 2020 were $40,900. (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.)

Account Titles and Explanation	Debit	Credit

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List of Accounts

  

  

Partially correct answer iconYour answer is partially correct.

Indicate the pension-related amounts that would be reported in the company’s income statement and balance sheet for 2020.

Headland Company Income Statement (Partial)                                                                       December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020
DividendsOperating ExpensesNet Income / (Loss)Retained Earnings – January 1, 2020Retained Earnings – December 31, 2020RevenuesTotal ExpensesTotal RevenuesOther Revenue / Expenses
Amortization of PSCInterest ExpensePension ExpenseRent ExpenseService Cost		$
DividendsOperating ExpensesNet Income / (Loss)Retained Earnings – January 1, 2020Retained Earnings – December 31, 2020RevenuesTotal ExpensesTotal RevenuesOther Revenue / Expenses
Amortization of PSCInterest ExpensePension ExpenseRent ExpenseService Cost		$

Headland Company Balance Sheet (Partial)                                                                       December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020
Current AssetsIntangible AssetsLong-term InvestmentsLiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Intangible AssetsTotal Long-term InvestmentsTotal Property, Plant and EquipmentTotal Stockholders' Equity
Accounts PayableAccounts ReceivableAccumulated DepreciationAccumulated Other Comprehensive Income (PSC)Accumulated Other Comprehensive Loss (PSC)Common StockPension LiabilityRetained Earnings			$

Answer 1

Requirement 1

Service cost	79,530
Add: Interest cost (701,900 * 10%)	70,190
Less: Expected return on plan assets	(10,900)
Pension expense	$ 138,820

Journal entry to record pension expense

Date	Journal Entry	Debit ($)	Credit($)
	Pension expense	138,820
	Pension asset/liability (To balance)	11,780
	Cash		150,600
	(To record pension expense)

Requirement 2

Income Statement

Expenses
Pension expense	138,820

Balance Sheet (Partial)

Long term liabilities
Pension Liability	15,420

Pension liability = Pension asset/liability – (annual expense- cash contribution) = 27,200 – (138,820-150,600) = $ 15,420

Out of this 11,780 has been already debited