Question

On January 1, 2021, McGee Co. had the following balances: Projected benefit obligation $7,800,000 Fair value of plan assets 7,800,000 Other data related to the pension plan for 2021: Service cost 315,000 Contributions to the plan 459,000 Benefits paid 450,000 Actual return on plan assets 468,000 Settlement rate 9% Expected rate of return 6% Instructions (a) Determine the projected benefit obligation at December 31, 2021. There are no net gains or losses. (b) Determine the fair value of plan assets at December 31, 2021. (c) Calculate pension expense for 2021. (d) Prepare the journal entry to record pension expense and the contributions for 2021.

Answer 1

Answer and Explanation:

(a)Projected benefit obligation,

January 1 $7,800,000

Service cost 315,000

Interest cost (9% × $7,800,000) 702,000

Benefits paid(450,000)

Projected benefit obligation, December 31 $8,367,000

b)Fair value of plan assets, January 1 $7,800,000

Actual return 468,000

Contributions 459,000

Benefits paid(450,000)

Fair value of plan assets, December 31 $8,277,000

(c)Service cost $315,000

Interest cost (9% × $7,800,000) 702,000

Actual (and expected) return on plan assets(468,000)

Pension expense $549,000

(d)

Dr Pension Expense 549,000

Cr Cash 549,000