Verna Company has had a defined benefit pension plan for several years. At the end of 2019, Verna accumulated the following information: (1) service cost for 2019, $127,000; (2) projected benefit obligation, 1/1/2019, $634,000; (3) discount rate, 9%; (4) plan assets. 1/1/2019, $589,000; and (5) expected long term rate of return on plan assets, 9%. There are no other components of Verna’s pension expense. Verna had an accrued/prepaid pension cost liability at the end of 2018. Verna contributed $128,000 to the pension plan at the end of 2019.
Required:
Compute the amount of Verna’s pension expense for 2019 and prepare the related journal entry.
Calculate the amount of pension expense of Company V for 2019 and prepare necessary journal entry.
Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.
Calculate the amount of pension expense of Company V for 2019:
Particulars | Amounts in ($) |
Service cost | $127,000 |
Add: Interest cost (1) | $57,060 |
Less: Expected return on plan assets (2) | $53,010 |
    Pension expense for 2019 | $131,050 |
Table (1)
Therefore, the pension expense of Company V for 2019 is $131,050.
Prepare journal entry to record the pension expense:
In this case, Company V has undervalued the pension contribution by $3,050
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
December 31, 2019 | Pension expense | Â | 131,050 | Â |
 | Cash |  |  | 128,000 |
 |
Accrued/prepaid pension cost | Â | Â | 3,050 |
 | (To record the pension expense and it is undervalued by $128,000) |  |  |  |
Table (2)
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