Question

Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2017 and 2018. 2016 2017 2018 Annual service cost \(16,000 \) 19,000 \( 26,000 Settlement rate and expected rate of return 10% 10% 10% Actual return on plan assets 18,000 22,000 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefits paid 14,000 16,400 21,000 Prior service cost (plan amended, 1/1/17) 160,000 Amortization of prior service cost 54,400 41,600 Change in actuarial assumptions establishes a December 31, 2018, projected benefi t obligation of: 520,000 2017 2018 Plan assets (fair value), December 31 \)699,000 $849,000 Projected benefi t obligation, January 1 700,000 800,000 Pension asset/liability, January 1 140,000 Cr. ? Prior service cost, January 1 250,000 240,000 Service cost 60,000 90,000 Actual and expected return on plan assets 24,000 30,000 Amortization of prior service cost 10,000 12,000 Contributions (funding) 115,000 120,000 Accumulated benefi t obligation, December 31 500,000 550,000 Interest/settlement rate 9% 9% Instructions (a) Compute pension expense for 2017 and 2018. (b) Prepare the journal entries to record the pension expense and the company’s funding of the pension plan for both years.

Short answer

Funding is a term used when an organization requires money and decides to raise funds from the financial market in either debt or equity. This process is termedfunding.

Step-by-step solution

(a) Computation of pension expense for the years 2017 and 2018

Particulars	2017	2018
Service cost	$60,000	$90,000
Add: Interest cost	$63,000	$72,000
Less: Expected return on plan assets	$24,000	$30,000
Add: Amortization of prior service cost	$10,000	$12,000
Pension Expense	$109,000	$144,000

(b) Preparation of the journal entries to record the pension expense and the company’s funding of the pension plan for both years

Gordon Company
Journal Entry
Date	Particulars	Debit	Credit
2017	Pension asset/liability	$39,000
	Pension expense	$109,000
	Other comprehensive income (PSC)		$10,000
	Other comprehensive Income (Gain/Loss) $\left[\left(\mathbf{\$}\mathbf{700}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{90}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{63}\mathbf{,}\mathbf{000}\right)\mathbf{-}\mathbf{\$}\mathbf{800}\mathbf{,}\mathbf{000}\right]$		$23,000
	Cash		$115,000
	(To record the pension expense)
2018	Pension Expense	$144,000
	Cash		$120,000
	Pension asset/liability		$12,000
	Other comprehensive income (PSC)		$12,000
	(To record the pension expense)