As of January 1, 2015, information related to the defined benefit pension plan of Leffingwell Company was — PBO 615 000 — Fair value assets 513 500

As of January 1, 2015, information related to the defined benefit pension plan of Leffingwell Company was

as follows:

PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . $1,615,000

Fair value of pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513,500

Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000

Deferred net pension gain or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0

Pension data for the years 2015 and 2016 are listed as follows:

2015 Pension plan information:

Service cost as reported by actuaries . . . . . . . . . . . . . . . . . . . . . . . . . $87,000

Contributions to pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000

Benefits paid to retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $132,000

Actual return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . $26,350

Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,000

Actuarial change increasing PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000

Obligation discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 11%

Long-term expected rate of return on pension plan assets . . . . . . . . . . . . 10%

2016 Pension plan information:

Service cost as reported by actuaries . . . . . . . . . . . . . . . . . . .. . . . . . $115,000

Contributions to pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,000

Benefits paid to retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,000

Actual return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . $180,000

Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,667

Obligation discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11%

Long-term expected rate of return on pension plan assets . . . .. . . . . . . . . 10%

As of January 1, 2016, the remaining expected service life of employees was 5.0 years. Also, Leffingwell uses the fair market value of pension plan assets at the beginning of the year as the market-related value of pension plan assets.

Instructions:

1. For both 2015 and 2016, prepare the pension note that discloses the component parts of pension expense as well as the items that combine to yield the net amounts reported in the balance sheet.

2. Prepare the summary journal entries for recording net pension expense and pension funding for 2015 and 2016.

SOLUTION

The following work sheets are not required but may be helpful.

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Leffingwell Company

Pension Work Sheet for 2015

Financial Statement Accounts Detailed Accounts

Pension Asset/Liability AOCI

Pension- Accumulated Fair Deferred

Net Related Other Projected Value of Prior Pension

Pension Asset/ Comprehensive Benefit Pension Service (Gain)/

Expense Cash (Liability) Income Obligation Fund Cost Loss

Bal., Jan. 1, 2015 (101,500) 105,000 (1,615,000) 1,513,500 105,000 0

(a) Service cost 87,000 (87,000)

(b) Interest cost 177,650 (177,650)

(c) Actual return (26,350) 26,350

(d) Benefits paid 132,000 (132,000)

(e) PSC amortization 21,000 (21,000)

(f) Deferred loss (125,000) 125,000

(g) Amort. of def. loss 0 0

(h) Change in PBO

assumptions (80,000) 80,000

(i) Pension cont. (120,000) 120,000

Bal., Dec. 31, 2015 134,300 (120,000) (299,800) 289,000 (1,827,650) 1,527,850 84,000 205,000

Leffingwell Company

Pension Work Sheet for 2016

Financial Statement Accounts Detailed Accounts

Pension Asset/Liability AOCI

Pension- Accumulated Fair Deferred

Net Related Other Projected Value of Prior Pension

Pension Asset/ Comprehensive Benefit Pension Service (Gain)/

Expense Cash (Liability) Income Obligation Fund Cost Loss

Bal., Jan. 1, 2016 (299,800) 289,000 (1,827,650) 1,527,850 84,000 205,000

(a) Service cost 115,000 (115,000)

(b) Interest cost 201,042 (201,042)

(c) Actual return (180,000) 180,000

(d) Benefits paid 140,000 (140,000)

(e) PSC amortization 18,667 (18,667)

(f) Deferred gain 27,215 (27,215)