Question

Buhl Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan

Plan assets	\(480,000
Defined benefit obligation	600,000
Pension asset/liability	120,000

As a result of the operation of the plan during 2017, the following additional data are provided by the actuary

Service cost for 2017	\)90,000
Discount rate, 6% Actual return on plan assets in 2017	55,000
Unexpected loss from change in defi ned benefit obligation, due to change in actuarial predictions	76,000
Contributions in 2017	99,000
Benefits paid retirees in 2017	85,000

Instructions

(a) Using the data above, compute pension expense for Buhl Corp. for the year 2017 by preparing a pension worksheet.

(b) Prepare the journal entry for pension expense for 2017.

Short answer

a. Worksheet is prepared in Step 2.

b. Journal entry is recorded in Step 3.

Step-by-step solution

Definition of Pension Expenses

The expenses reported by the business entity in respect of the pension payable to the employees of the enterprise are known as pension expenses.

Calculation of pension expenses

Item	Annual pension expenses	Cash	OCI prior service cost	OCI gains/losses	Pension assets/liability	Projected benefit obligations	Plan assets
Balance on 1 Jan 2017					($120,000)	$600,000	$480,000
Service cost	$90,000					($90,000)
Interest cost 9% of $600,000	$54,000					($54,000)
Actual return	($55,000)						$55,000
Unexpected gains	$3,000			($3,000)
Amortization of PSC	$19,000		($19,000)
Liability increase				$76,000		($76,000)
Contribution		($99,000)					$99,000
Benefits						$85,000	($85,000)
	$111,000	($99,000)	($19,000)	$73,000	($66,000 ) ($111,000+$73,000-$99,000-$19,000)
			$100,000
			$81,000	$73,000	($186,000)	$735,000 ($549,000+$186,000)	$549,000

Journal entry for pension expenses

Date	Accounts and Explanation	Debit $	Credit $
	Pension expenses	$111,000
	Other comprehensive income	$73,000
	Cash		$99,000
	Other comprehensive income		$19,000
	Pension asset/liability		$66,000
	(To record the pension expenses)