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Measuring, recording and reporting pension expense/liability

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Eckert, Inc. on January 1, 2008 initiated a noncontributory, defined-benefit pension plan that grants benefits to its 100 employees for services rendered in years prior to the adoption of the pension plan. The total expected service-years of the 100 employees who are expected to receive benefits under the plan is 1,200.

An actuarial consulting firm has indicated that the present value of the projected benefit obligation on January 1, 2008 was $5,040,000.

On December 31, 2008 the following information was provided concerning the pension plan's operations for its first year.

Employer's contribution at end of year $1,600,000
Service cost 600,000
Accumulated benefit obligation 5,090,000
Projected benefit obligation 6,000,000
Plan assets (at fair value) 1,600,000
Market-related asset value 1,600,000
Expected return on plan assets 9%
Settlement rate 8%

Instructions
a. Compute the pension expense recognized in 2008. Assume the prior service cost is amortized over the average remaining service life of the employees.

b. Prepare the journal entries to reflect accounting for the company's pension plan for the year ended December 31, 2008.

c. Indicate the amounts that are reported on the income statement and the balance sheet for 2008.

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Solution Summary

The solution explains the journal entries in relation to pension expense and the impact on financial statements

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