Company B employs several employees. They have set up a new defined benefit plan

Question

Company B employs several employees. They have set up a new defined benefit plan with no retroactive benefits or costs incurred. Both the discount rate and expected rate of return are 10%. The service costs are as follows:

$700,000 for 2010,

$720,000 for 2011, and

$750,000 for 2012.

The company has decided to adopt a policy to fund the pension at an equal amount to the pension expense. The company expects to make retirement payments of $20,000 beginning in 2012.

3. Prepare the entry required to record the pension expense for each year (2010, 2011, and 2012).

Explanation / Answer

For 2010

Pension expenses A/c Dr. 630000

To Cash A/c 63000

Similarly, for years further you will pass the same entry but for 2012 seperate entry in the name of retirement payments need's to be made as well.

2010 2011 2012 Service cost 700000 720000 750000 Expected return 70000 72000 75000 Pension Expenses 630000 648000 675000

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