As of January 1, 2008, information related to the defined benefit pension plan of Leffingwell Company was as follows:

PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,615,000

Fair value of pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513,500

Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000

Unrecognized net pension gain or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0

Pension data for the years 2008 and 2009 are listed as follows:

2008 Pension plan information:

Service cost as reported by actuaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,000

Contributions to pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,000

Benefits paid to retirees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 132,000

Actual return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,350

Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,000

Actuarial change increasing PBO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000

Settlement interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0%

Long-term expected rate of return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . 10.0%

ABO, December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,530,000

2009 Pension plan information:

Service cost as reported by actuaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 115,000

Contributions to pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 125,000

Benefits paid to retirees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140,000

Actual return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 180,000

Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,667

Settlement interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0%

Long-term expected rate of return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . 10.0%

ABO, December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,850,000

As of January 1, 2009, the remaining expected service life of employees was 5.0 years. Also, Leffingwell uses the fair market value of pension plan assets at the beginning of the year as the market-related value of pension plan assets.

Instructions:

1. For both 2008 and 2009, prepare the pension note that discloses the component parts of pension expense as well as the items that combine to yield the net amount reported in the balance sheet.

2. Prepare the journal entries for recording net pension expense and pension funding for 2008 and 2009.

3. Compute any additional liability to be recorded for each of the years. Prepare the necessary journal entry.