Question

Problem #1                      
Tucker, Inc, on January 1, 2021, initiated a noncontributory, defined-benefit pension plan that grants benefits                      
to its 100 employees for services rendered in years prior to the adoption of the penion plan. The total expected                      
service years of the 100 employees who are expected to receive benefits under the plan is 1,200. An actuarial                      
consulting firm has indicated that the present value of the PBO on January 2, 2021 was $5,880,000. On                       
December 31, 2021 the following information was provided concerning the pension plan's operations for                       
its first year.                      
                      
Employers's contribution at the end of the year                   $1,600,000   
Service Cost                   600,000  
PBO                   6,561,600  
Plan Assets (at fair value)                   1,600,000  
Expected Return on plan assets                   9%  

Settlement Rate                   8%  
                      
Compute the penson expense recognized in 2021. Assume the PSC is amortized over the average remaining                      
service life of the employees.                      
                      
Prepare the journal entries to reflect accounting for the company's pension plan for the year ended Dec, 31, 2021.                      
                      
Indicate the amounts that are reported on the Income Staatment and the Balance Sheet for 2021.                      

Answer 1

Answer:

a)

Service Cost	600,000
Interest on projected benefit obligation (5880000*8%)	470,400
Amortization of prior service cost (5880000/12)**	490,000
Pension expense 2021	1,560,400

**1200/100 = 12 years average remaining service life

b)

Particulars	Debit ($)	Credit ($)
Pension Expense	1,560,400
Pension Asset / Liability
Cash		1,600,000
OCI - PSC		490,000

c)

Income Statement
Pension Expense	1,560,400
Balance Sheet
Liabilities:
Pension Liability (6561600-1600000)	4,961,600
Stockholders Equity:
Accumulated OCI (PSC) (5880000-490000)	5,390,000

Note: The Other comprehensive Income (PSC) charge is added to net income to deteermine Total comprehensive income. The presentation of net income and other comprehensive income can be shown in a single combined statement separate statements or in the statement of stockholders equity.