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Henning Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2017 in which no benefits were paid. 1. The actuarial present value of future benefits earned by employees for services rendered in 2017 amounted to \(56,000. 2. The company鈥檚 funding policy requires a contribution to the pension trustee amounting to \)145,000 for 2017. 3. As of January 1, 2017, the company had a projected benefit obligation of \(900,000, an accumulated benefit obligation of \)800,000, and a debit balance of \(400,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to \)600,000 at the beginning of the year. The actual and expected return on plan assets was \(54,000. The settlement rate was 9%. No gains or losses occurred in 2017 and no benefits were paid. 4. Amortization of prior service cost was \)50,000 in 2017. Amortization of net gain or loss was not required in 2017. Instructions (a) Determine the amounts of the components of pension expense that should be recognized by the company in 2017. (b) Prepare the journal entry or entries to record pension expense and the employer鈥檚 contribution to the pension trustee in 2017. (c) Indicate the amounts that would be reported on the income statement and the balance sheet for the year 2017.

Step by step solution

01

(a) Computation of pension expense for 2017.

Particulars	Amount
Service cost	$56,000
Add: Interest on projected benefit obligation	$81,000
Less: Expected return on plan assets	$54,000
Add: Amortization of prior service cost	$50,000
Pension Expense	$133,000

02

(b) Journal entry to record the pension expense and the employer’s contribution to the pension trustee in 2017.

Henning Company
Journal Entry
Date	Particulars	Debit	Credit
2017	Pension Expense	$133,000
	Pension Asset/Liability	$62,000
	Cash		$145,000
	Other comprehensive income		$50,000
	(To record the pension expense)

03

Computation of pension liability

Particulars	Amount
Projected benefit obligation	$1,037,000
Less: Plan assets	$799,000
Pension Liability	$238,000

04

Computation of the amount of plan assets and the projected benefit obligation.

Partial Worksheet
Particulars	Plan assets	Projected benefit obligation
Balance Jan 1, 2017	$600,000	$900,000
Service cost		$56,000
Interest on PBO		$81,000
Actual return	$54,000
Contribution	$145,000
Balance Dec 31, 2017	$799,000	$1,037,000

Particulars	Amount
Stockholder鈥檚 Equity
Accumulated OCI Jan 1, 2017	$400,000
Less: Amortization of prior service cost	$50,000
Accumulated OCI Dec 31, 2017	$350,000

05

(c) Amounts that would be reported on the income statement and the balance sheet for the year 2017.

Income Statement
Particulars	Amount
Pension Expense	$133,000

Comprehensive Income Statement
Particulars	Amount
Net Income	-
Other comprehensive income	-
Amortization of PSC	$50,000
Comprehensive income	-

Balance Sheet
Liabilities	Amount
Pension Liability	$238,000

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