PENCOMP’s balance sheet at December 31, 2025, is as follows.

Additional information concerning PENCOMP’s defined benefit pension plan is as follows.

Other information about PENCOMP is as follows.

Accounting

Prepare an income statement for 2026 and a balance sheet as of December 31, 2026. Also, prepare the pension expense journal entry for the year ended December 31, 2026. Round to the nearest tenth (e.g., round 2.87 to 2.9).

Analysis

Compute return on equity for PENCOMP for 2026 (assume stockholders’ equity is equal to year-end average stockholders’ equity). Do you think an argument can be made for including some or even all of the change in accumulated other comprehensive income (due to pensions) in the numerator of return on equity? Illustrate that calculation.

Principles

Explain a rationale for why the FASB has (so far) decided to exclude from the current period income statement the effects of pension plan amendments and gains and losses due to changes in actuarial assumptions.

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Assets Cash Inventory Total current assets Plant and equipment Accumulated depreciation Total assets PENCOMP, Inc. Balance Sheet As of December 31, 2025 Liabilities Notes payable Pension liability Total liabilities Stockholders' equity $438 1,800 2,238 2,000 (240) 1,760 $3,998 Common stock Retained earnings Accumulated other comprehensive income Total stockholders' equity Total liabilities and stockholders' equity $1,000 344 1,344 2,000 896 (242) 2,654 $3,998