Question

Exercise 20-12 (Part Level Submission)

Sheffield Company received the following selected information from its pension plan trustee concerning the operation of the company’s defined benefit pension plan for the year ended December 31, 2020.

		January 1, 2020		December 31, 2020
Projected benefit obligation		$1,497,000		$1,525,000
Market-related and fair value of plan assets		789,000		1,114,900
Accumulated benefit obligation		1,612,000		1,733,300
Accumulated OCI (G/L)—Net gain		0		(199,700	)

The service cost component of pension expense for employee services rendered in the current year amounted to $78,000 and the amortization of prior service cost was $121,300. The company’s actual funding (contributions) of the plan in 2020 amounted to $247,000. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of $1,213,000 on January 1, 2020. Assume no benefits paid in 2020.

(a)

	Your answer is correct.

Determine the amounts of the components of pension expense that should be recognized by the company in 2020. (Enter amounts that reduce pension expense with either a negative sign preceding the number e.g. -45 or parenthesis e.g. (45).)

Components of Pension Expense
Actual Return on Plan AssetsAmortization of Prior Service CostBenefits PaidContributions to PlanExpected Return on Plan AssetsInterest on Projected Benefit ObligationService Cost		$
Actual Return on Plan AssetsAmortization of Prior Service CostBenefits PaidContributions to PlanExpected Return on Plan AssetsInterest on Projected Benefit ObligationService Cost
Actual Return on Plan AssetsAmortization of Prior Service CostBenefits PaidContributions to PlanExpected Return on Plan AssetsInterest on Projected Benefit ObligationService Cost
Actual Return on Plan AssetsAmortization of Prior Service CostBenefits PaidContributions to PlanExpected Return on Plan AssetsInterest on Projected Benefit ObligationService Cost

SHOW LIST OF ACCOUNTS

SHOW SOLUTION

SHOW ANSWER

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

Attempts: 2 of 3 used

(b)

Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2020. (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
(To record pension expense and employer’s contribution)

SHOW LIST OF ACCOUNTS

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

LINK TO TEXT

Attempts: 0 of 3 used

SAVE FOR LATER

SUBMIT ANSWER

(c) The parts of this question must be completed in order. This part will be available when you complete the part above.

Answer 1

Answer:

Answer-(a):
Service costs	$       78,000
Interest on PBO ($1,497,000 * 10%)	149,700
Expected return on plan assets ($789,000 * 10%)	(78,900)
Amortization of prior service cost	121,300
Pension expense-2020	$    270,100
Answer-(b):
Account Title	Debit	Credit
Pension Expense	$    270,100
Pension assets/Liability	297,900
Cash		$    247,000
Other Comprehensive Income (PSC)		121,300
Other Comprehensive Income (G/L)		199,700