Question

The following information is available for the pension plan of Radcliffe Company for the year 2017. Actual and expected return on plan assets $ 15,000 Benefits paid to retirees 40,000 Contributions (funding) 90,000 Interest/discount rate 10% Prior service cost amortization 8,000 Projected benefit obligation, January 1, 2017 500,000 Service cost 60,000 Instructions (a) Compute pension expense for the year 2017. (b) Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2017.

Short answer

A pension plan is the type of plan an organization offers to its employees to benefit them after their retirement age. These plans are made for employee welfare.

Step-by-step solution

(a) Computation of pension expense for the year 2017

Particulars	Amount
Service cost	$60,000
Add: Interest cost$\left(\mathbf{\$}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{100}}\right)$	$50,000
Less: Expected return on plan assets	$15,000
Add: Prior service cost amortization	$8,000
Pension Expense for 2017	$103,000

(b) Journal entry for recording the pension expense and the employer’s contribution to the pension plan for the year 2017

Radcliffe Company
Journal Entry
Date	Particulars	Debit	Credit
2017	Pension Expense	$103,000
	Cash		$90,000
	Pension asset/liability		$5,000
	Other comprehensive income		$8,000
	(To record the pension expense)