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

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 11, Problem 18E
Textbook Problem
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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

Journalize the entries to record the accrued pension liability on December 31 and the payment to the funding agent on January 15.

Explanation of Solution

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

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

DateAccounts and ExplanationPost RefDebit ($)Credit ($)
December31Pension 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...

b.

To determine

State the different between defined contribution plan and defined benefit plan.

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