On December 31, 2016, Robey Company accumulated the following information for 20

Question

On December 31, 2016, Robey Company accumulated the following information for 2016 in regard to its defined benefit pension plan:

Service cost $113,500

Interest cost on projected benefit obligation 11,390

Expected return on plan assets 11,960

Amortization of prior service cost 1,900

On its December 31, 2015, balance sheet, Robey had reported an accrued/prepaid pension cost liability of $12,900.

Required:

1. Compute the amount of Robey’s pension expense for 2016. 2. Prepare all the journal entries related to Robey’s pension plan for 2016 if it funds the pension plan in the amount of (a) $114,830, (b) $113,840, and (c) $118,870. 3. Next Level Assuming Robey’s beginning 2016 Accumulated Other Comprehensive Income: Prior Service Cost balance was $57,480 what would be its ending balance? 4. Next Level How much would Robey need to fund its pension plan for 2016 in order to report an accrued/ prepaid pension cost asset of $5,460 at the end of 2016?

Explanation / Answer

1)

Pension Expense Calculation

Service cost

$113,500

Add: Interest cost on projected benefit obligation

$11,390

Less: Expected return on plan assets

-$11,960

Add: Amortization of prior service cost

$1,900

2016 pension expense

$114,830

2) a.

Journal Entries

Date

Account

Debit

Credit

31-Dec-16

Pension Expense

$114,830

Cash

$114,830

31-Dec-16

Accrued/Prepaid Pension Cost

$1,900

Prior Service Cost

$1,900

b.

Journal Entries

Date

Account

Debit

Credit

31-Dec-16

Pension Expense

$114,830

Cash

$113,840

Accrued/Prepaid Pension Cost

$990

31-Dec-16

Accrued/Prepaid Pension Cost

$1,900

Prior Service Cost

$1,900

c.

Journal Entries

Date

Account

Debit

Credit

31-Dec-16

Pension Expense

$114,830

Accrued/Prepaid Pension Cost

$4,040

Cash

$118,870

31-Dec-16

Accrued/Prepaid Pension Cost

$1,900

Prior Service Cost

$1,900

3) Ending balance of Accumulated Other Comprehensive Income: Prior Service Cost balance = Beginning balance of Accumulated Other Comprehensive Income: Prior Service Cost balance - Amortization of prior service cost

=> $57,480 - $1,900 = $55,580

4) Fund Required = Target accrued/ prepaid pension cost asset + Accrued/prepaid pension cost liability + Pension Expense for the year
=> $5,460 + $12,900 + $114,830 = $133,190

Pension Expense Calculation

Service cost

$113,500

Add: Interest cost on projected benefit obligation

$11,390

Less: Expected return on plan assets

-$11,960

Add: Amortization of prior service cost

$1,900

2016 pension expense

$114,830

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