Ma rtinez Company sponsors a defined benefit pension plan for its employees. The

Question

Ma rtinez Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 2017 and 2018. 2017 $602,300 413,300 169,500 11,500 41,400 9% 8% 39,600 97,000 35,700 726,600 20.5 years 2018 Projected benefit obligation, January 1 Plan assets (fair value and market-related value), January 1 Prior service cost, January 1 Other Comprehensive Income - Gain, Jan 1 Service cost Discount rate (Pension Expense-Interest) Expected rate of return Actual return on plan assets Annual contributions Benefits paid retirees Accumulated benefit obligation at December 31 Average service life of all employees Vested benefit obligation at December 31 $68,900 9% 8% 65,100 87,700 56,030 797,600 20 years 467,000 At the beginning of 2017, the pension plan was amended causing an increase in prior service cost of $17,250. Further, due to changes in actuarial assumptions during 2017, the pension benefit obligation increased by $113,000. Prepare a pension worksheet presenting both years (2017 and 2018) and prepare the related journal entries

Explanation / Answer

a. Pension Worksheet Martinez Company Pension worksheet - 2017 and 2018 General Journal Entries Memo Record Items Annual Pension Expense Cash OCI: Prior Service Cost OCI:(Gains)/Losses Pension Asset/(Liability) Projected Benefit Obligation Plan Assets Balance January 1,2017                 (189,000)                (602,300)           413,300 (a)Service Cost       41,400                  (41,400) (b)Interest Cost       54,207                  (54,207) ( c )Actual return    (39,600)              39,600 (d)Unexpected gain         6,536      (6,536) (d)Contributions (97,000)              97,000 (e)Benefit paid to retirees                    35,700           (35,700) (f)Increase in prior period cost        17,250                  (17,250) (g)Increase in PBO    113,000                (113,000) Journal entry for 2017       62,543 (97,000)        17,250    106,464                   (89,257) Accumulated OCI, 1/1/2017     169,500    (11,500) Balance, December 31, 2017     186,750      94,964                 (278,257)                (792,457)           514,200 (a)Service Cost       68,900                  (68,900) (b)Interest Cost       71,321                  (71,321) ( c )Actual return    (65,100)              65,100 (d)Unexpected gain       23,964    (23,964) (d)Contributions (87,700)              87,700 (e)Benefit paid to retirees                    56,030           (56,030) (f)Increase in prior period cost (g)Increase in PBO Journal entry for 2018       99,085 (87,700)                 -      (23,964)                     12,579 Accumulated OCI, 1/1/2018     186,750      94,964 Balance, December 31, 2018     186,750      71,000                 (265,678)                (876,648)           610,970 Journal Entry for 2017 Pension Expense $62,543 OCI-Prior period cost $17,250 OCI-Gain/Loss $106,464         Cash $97,000          Pension Liability $89,257 Journal Entry for 2018 Pension Expense $99,085 Pension Asset $12,579         Cash $87,700         OCI-Gain/loss $23,964 Notes: Interest cost = $602300 x 9% = 54207 Interest cost for 2018 = $792457 x 9%=71321 Expected return on Assets = $413300 x 8%= $33064 Expected return on Assets = $514200 x 8%= $41136 Unexpected Gain for 2017 = $39600-$33064 = $6536 Unexpected Gain for 2018 = $65100-$41136 = $23964

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