Question

A

B

Waterway Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2017 in which no benefits were paid. 1. The actuarial present value of future benefits earned by employees for services rendered in 2017 amounted to $55,700. 2. The company's funding policy requires a contribution to the pension trustee amounting to $144,323 for 2017. 3. As of January 1, 2017, the company had a projected benefit obligation of $894,700, an accumulated benefit obligation of $792,500, and a debit balance of $402,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to $601,400 at the beginning of the year. The actual and expected return on plan assets was $54,300. The settlement rate was 9%. No gains or losses occurred in 2017 and no benefits were paid. 4. Amortization of prior service cost was $49,800 in 2017. Amortization of net gain or loss was not required in 2017. Determine the amounts of the components of pension expense that should be recognized by the company in 2017. (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

C

D

Account names:

Accumulated Depreciation
Accumulated Other Comprehensive Income
Cash
Common Stock
Cost of Goods Sold
Depreciation Expense
Interest Expense
Inventory
Notes Payable
Other Comprehensive Income (G/L)
Other Comprehensive Income (PSC)
Pension Asset/Liability
Pension Expense
Plant and Equipment
Postretirement Asset/Liability
Postretirement Expense
Retained Earnings
Salary Expense
Sales

Answer 1

A) Calculation of Components of Pension Expense (Amounts in $)

Service Cost	55,700
Interest on Projected benefit obligation (894,700*9%)	80,523
Expected return on plan assets	(54,300)
Amortization of prior service cost	49,800
Pension Expense for 2017	131,723

B) Journal Entry to record Pension Expense (Amounts in $)

Account Titles	Debit	Credit
Pension Expense	131,723
Pension Asset/Liability (Bal fig) (144,323+49,800-131,723)	62,400
Cash (contribution amount)		144,323
Other Comprehensive Income (Prior service cost amortized)		49,800
(To record the pension expense for 2017)

C) The partial income statement and other comprehensive income is shown as follows:-

Waterway Company
Income Statement (Partial)
For The Year Ended December 31, 2017
Expenses
Pension Expense	131,723
Waterway Company
Comprehensive Income Statement
For The Year Ended December 31, 2017
Net Income/(loss)	XXXX
Other Comprehensive Income (PSC)
Amortization of PSC	49,800
Comprehensive Income	XXXX

D) Calculation of Pension Asset or Liability to be reported on balance sheet (Amounts in $)

	Plan Assets	Projected Benefit Obligations
Balance as on Jan 1, 2017	601,400	894,700
Service Cost		55,700
Interest on Projected Benefit Obligation		80,523
Actual return on plan assets	54,300
Cash Contribution	144,323
Balance as on Dec 31, 2017	800,023	1,030,923
Pension Liability on Dec 31, 2017 (1,030,923-800,023)		230,900

Partial Balance sheet as on Dec 31, 2017 is shown as follows:-

Waterway Company
Balance Sheet (Partial)
December 31, 2017
Long-term Liabilities
Pension Liability	230,900
Stockholder's Equity
Accumulated other comprehensive income (PSC) (402,000-49,800)	352,200

Accumulated other comprehensive income is equal to beginning balance of Accumulated other comprehensive income less amortization of prior service cost.