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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Pension plan entries

Yuri Co. operates a chain of gift shops. The company maintains a defined contribution pension plan for its employees. The plan requires quarterly installments to be paid to the funding agent, Whims Funds, by the fifteenth of the month following the end of each quarter. Assume that the pension cost is $365,000 for the quarter ended December 31.

  1. a. Journalize the entries to record the accrued pension liability on December 31 and the payment to the funding agent on January 15.
  2. b. How does a defined contribution plan differ from a defined benefit plan?

A.

To determine

Pension: Pension is a cash payment given to the employees at the time of their retirement. The pension benefits are accrued based on years of service, annual compensation and age, and based on the employer’s pension plan. There are mainly to basic types of pension plans:

  • Defined contribution pension plan
  • Defined benefits pension plan

To journalize: The entries to record the accrued pension liability on December 31.

Explanation

1)

Prepare journal entry to record the accrued pension liability on December 31.

Date Accounts and Explanation Post Ref Debit ($) Credit ($)
December 31 Pension Expense 365,000
Unfunded Pension Liability 365,000
(To record the pension cost)

Table (1)

  • Pension expense is an expense and it decreases the equity value. So, debit it by $365,000.
  • Unfunded pension liability is a liability and it is increased. So, credit it by $365,000...

B.

To determine

To state: the different between defined contribution plan and defined benefit plan.

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