On January 1, 2010, the Baznik Company adopted a defined benefit pension plan. At that time, the company awarded retroactive benefits to certain employees. These retroactive benefits resulted in a prior service cost of $1,200,000 on that date (which it did not fund). The company has six participating employees who are expected to receive the retroactive benefits. Following is a schedule that identifies the participating employees and their expected years of future service as of January 1, 2010:
Expected Years of Employee Future Service
A .............. 1
B .............. 3
C .............. 4
D .............. 5
E .............. 5
F .............. 6
The company decided to amortize the prior service cost to pension expense using the years of future service method. The following are the amounts of the components of Baznik Company's pension expense, in addition to the amortization of the prior service cost for 2010 and 2011:
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The company contributed $850,000 and $830,000 to the pension fund at the end of 2010 and 2011, respectively.
Required:
1. Prepare a set of schedules for the Baznik Company to determine
(a) The amortization fraction for each year,
(b) The amortization of the prior service cost.
2. Prepare all the journal entries related to the Baznik Company 's pension plan for 2010 and2011.