As of January 1, 2015, information related to the defined benefit pension plan of Leffingwell Company was
Question:
As of January 1, 2015, 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
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000
Deferred net pension gain or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Pension data for the years 2015 and 2016 are listed as follows:
2015 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
Obligation discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 11%
Long-term expected rate of return on pension plan assets . . . . . . . . . . . . 10%
2016 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
Obligation discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11%
Long-term expected rate of return on pension plan assets . . . .. . . . . . . . . 10%
As of January 1, 2016, 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 2015 and 2016, prepare the pension note that discloses the component parts of pension expense as well as the items that combine to yield the net amounts reported in the balance sheet.
2. Prepare the summary journal entries for recording net pension expense and pension funding for 2015 and 2016.
Discount RateDepending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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