Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2025.

Question:

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2025. The insurance company which administers the pension plan provided the following selected information for the years 2025, 2026, and 2027.image


There were no balances as of January 1, 2025, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company’s pension obligation was 13% in 2025, 11% in 2026, and 8% in 2027. The service cost component of net periodic pension expense amounted to the following: 2025, $60,000; 2026, $85,000; and 2027, $119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2025, $30,000 of benefits were paid in 2026, and $18,500 of benefits were paid in 2027 (all benefits paid at end of year).



Instructions


(Round to the nearest dollar.)


a. Calculate the amount of net periodic pension expense that the company would recognize in 2025, 2026, and 2027.


b. Prepare the journal entries to record net periodic pension expense, employer’s funding contribution, and related pension amounts for the years 2025, 2026, and 2027.

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Related Book For  book-img-for-question

Intermediate Accounting

ISBN: 9781119790976

18th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

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