Pension Plan Present Value Calculations
Response to the following problem:
The Ark Company adopted a defined benefit pension plan for its employees on January 1, 2010. All its employees are the same age, retire at the same time, and have the same life expectancy after retirement. The company decided to compute its pension expense on December 31 of each year; it also decided to fund an amount on that date equal to the year's service cost. The following is a listing of other relevant facts:
Annual pension benefits earned by all employees for each year of service* $100,000
Years to retirement (at end of 2010) 20
Years of life expectancy after date of retirement 1 5
Discount rate 9%
Expected long-term (and actual) rate of return on plan assets 8%
*Paid at end of each year
Required
1. Prepare a schedule to compute the Ark Company's pension expense for 2010 through 2012. Round to the nearest dollar.
2. Prepare the year-end journal entries to record the company's pension expense for 2010 through 2012.