Question - Springsteen Company has four professional employees that are covered by a defined contribution pension plan. The pension plan states that contributions equal to 10% of the employee's annual salaries are to be paid in cash to the mutual fund chosen by the employee. In 2004, the employees' salaries are as follows:
Patti Clarence Danny Max
$ 75,000 100,000 80,000 65,000
Employees are expected to receive a 5% raise in both 2005 and 2006.
In 2004, Springsteen paid cash to the mutual funds equal to its obligation under the terms of the plan. In 2005, Springsteen paid cash to the mutual funds equal to only 95% of its obligation. In 2006, Springsteen paid the remainder of its 2005 obligation and 110% of its obligation for 2006.
Required:
1. Determine Springsteen's obligation under the pension plan for 2004, 2005, and 2006.
2. Prepare the journal entries that Springsteen would make in 2004, 2005, and 2006 related to its pension plan.
3. What amounts would be shown as assets and liabilities related to the pension plan on the balance sheets at 12/31/04, 12/31/05, and 12/31/06?