On January 1, 2014, Vermont Ltd. reported the following balances relating to the
ID: 2561406 • Letter: O
Question
On January 1, 2014, Vermont Ltd. reported the following balances relating to their defined benefit pension plan:
Defined benefit obligation ........................ $1,600,000
Fair value of plan assets .......................... 1,600,000
Other data related to the pension plan for calendar 2014 are:
Current service cost ................................70,000
Contributions to the plan .........................102,000
Benefits paid .........................................100,000
Actual return on plan assets ....................96,000
Interest (discount) rate ...........................9%
Vermont uses the immediate recognition approach.
Instructions
a. Calculate the defined benefit obligation at December 31, 2014.
b. Calculate the fair value of plan assets at December 31, 2014.
c. Calculate pension expense for 2014.
d. Prepare the journal entries to record the pension expense and the contributions for 2014.
Explanation / Answer
a Projected Benefit obligation , January 1 1,600,000 Service Cost 70,000 Interest Cost (9%*1,600,000) 144000 Benefits Paid -100000 Projected Benefit obligation , January 31 1,714,000 b Fair Value of Plan Assets, January 1 1,600,000 Actual Return 96000 Contributions 102000 Benefits Paid -100000 Fair Value of Plan Assets, December 31 1,698,000 c Service Cost 70,000 Interest Cost (9%*1,600,000) 144000 Actual (and expected return on plan assets) -96000 Pension Expense 118,000 d Pension Expense 118,000 Pension Asset/ Liability 16,000 Cash 102000
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