Question

Latoya Company provides the following selected information related to its defined benefit pension plan for 2017. Pension asset/liability (January 1) \( 25,000 Cr. Accumulated benefit obligation (December 31) 400,000 Actual and expected return on plan assets 10,000 Contributions (funding) in 2017 150,000 Fair value of plan assets (December 31) 800,000 Settlement rate 10% Projected benefit obligation (January 1) 700,000 Service cost 80,000 Instructions (a) Compute pension expense and prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2017. Preparation of a pension worksheet is not required. Benefits paid in 2017 were \)35,000. (b) Indicate the pension-related amounts that would be reported in the company’s income statement and balance sheet for 2017.

Short answer

Employers' contributions to the pension plan are used when a certain amount isdeducted from the employee's salary (monthly) as a provident fund.The aggregate amount will be used after theemployee's retirement.

Step-by-step solution

(a) Computation of pension expense.

Particulars	Amount
Service cost	$80,000
Add: Interest cost $\left(\mathbf{\$}\mathbf{700}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)$	$70,000
Less: Expected return on plan assets	$10,000
Pension Expense for 2017	$140,000

(a) Journal Entry

Latoya Company
Journal Entry
Date	Particulars	Debit	Credit
2017	Pension Expense	$140,000
	Pension asset/liability	$10,000
	Cash		$150,000
	(To record the pension expense)

(b) Indication of the pension-related amounts that would be reported in the company’s income statement and balance sheet for 2017

Latoya Company
Income Statement
Particulars	Amount
Pension Expense	$140,000

Latoya Company
Balance sheet as on December 31, 2017
Liabilities	Amount
Pension Liability$\left(\mathbf{\$}\mathbf{25}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{000}\right)$	$15,000