Comprehensive
Response to the following problem:
The Jay Company has had a defined benefit pension plan for several years. At the beginning of 2010, the company amended the plan; this amendment provided for increased benefits to employees based on services rendered in prior periods. The prior service cost related to this amendment totaled $88,000; as a result, the projected benefit obligation increased. The company decided not to fund the increased obligation at the time of the amendment, but rather to increase its periodic year-end contributions to the pension plan.
The following information for 2010 has been provided by the company's actuary and funding agency, and obtained from a review of its accounting records:
Projected benefit obligation (12/31) $808,090
Service cost 183,000
Discount rate 9%
Cumulative net loss (1/1) 64,500
Company contribution to pension plan (12/31) 200,000
Projected benefit obligation (1/1)* 513,000
Plan assets, fair value (12/31) 698,000
Accrued pension cost (liability) (1/1) 33,000*
Expected (and actual) return on plan assets 48,000
Plan assets, fair value (1/1) 480,000
Retirement benefits paid 30,000
*Before the increase of $88,000 due to the prior service cost from the amendment
The company decided to amortize the prior service cost and any excess cumulative net loss by the straight-line method over the average remaining service life of the participating employees. It has developed the following schedule concerning these 50 employees:
|
Employee Numbers
|
Expected Years of Future Service*
|
Employee
Numbers
|
Expected Years of Future Service
|
|
1-5
|
2
|
26-30
|
12
|
|
6-10
|
4
|
31-35
|
14
|
|
11-15
|
6
|
36-40
|
16
|
|
16-20
|
8
|
41-45
|
18
|
|
21-25
|
10
|
46-50
|
20
|
*Per employee
Required
1. Compute the average remaining service life and prepare a schedule to determine the amortization of the prior service cost of the Jay Company for 2010.
2. Prepare a schedule to compute the net gain or loss component of pension expense for 2010.
3. Prepare a schedule to compute the pension expense for 2010.
4. Prepare all the journal entries related to Jay Company's pension plan for 2010.
5. What is Jay Company's total accrued/prepaid pension cost at the end of 2010? Is it an asset or liability?