Practice Problem 2 (10 minutes)

Stamp Ltd. operates both a defined benefit pension plan and a defined contribution pension plan for its employees. For the defined contribution plan, both Stamp and its employees contribute to the plan, with employees paying 5% of their salary and Stamp paying 6%. At January 1, 2020, there were 200 members in the defined contribution plan. Their salaries for the year to December 31, 2020, totalled $5,600,000.

On July 1, 2020, 150 members transferred from Stamps defined benefit plan to the defined contribution plan. Their salaries for the six months to December 31, 2020, totalled $2,025,000.

On December 31, 2020, Stamp contributed $500,000 to the defined contribution plan

. Required:

a) Calculate the net expense to be charged to profit or loss of Stamp for the year ended December 31, 2020, in respect to the defined contribution pension plan.

b) Prepare the necessary journal entry for 2020 to record Stamps defined contribution pension plan.