P20-1



P20-1. On Jan 1, 2010 cunningham company has the following defined benefit pension plan balances. Projected benefit obligation 4,500,000 Fair value of plan assets 4,200,000 The interest (settlement) rate applicable to the plan is 10%. On Jan 1, 2011 the company amends its pension agreement so that prior service costs of 500,00 are created. other data related to the pension plan are as follows. Year 2010 Service 150,000 Prior service cost amortization 0 Contribution (funding) to the plan 240,000 benefits paid 200,000 actual return on plan assets 252,000 expected rate of return on assets 6% Year 2011 Service cost 180,000 prior service cost amortization 90,000 contributions (funding) ti the plan 285,000 benefits paid 280,000 actual return on plan assets 260,000 expected rate of return on assets 8% A. prepare a pension worksheet for the pension plan for 2010 and 2011 B. for 2011 prepare the journal entry to record pension related amounts.

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|(a) CUNNINGHAM COMPANY |

|Pension Worksheet—2010 and 2011 |

| |General Journal Entries |Memo Record |

| |Annual | |OCI—Prior | | |Projected | |

| |Pension | |Service Cost |OCI—Gain/ |Pension |Benefit |Plan |

|Items |Expense |Cash | |Loss |Asset/Liability |Obligation |Assets |

|Balance, Jan. 1, 2010 | | | | |300,000 Cr. |4,500,000 Cr. |4,200,000 Dr. |

|Service cost |150,000 Dr. | | | | |150,000 Cr. | |

|Interest cost* |450,000 Dr. | | | | |450,000 Cr. | |

|Actual return |252,000 Cr. | | | | | |252,000 Dr. |

|Contributions | |240,000 Cr. | | | | |240,000 Dr. |

|Benefits |   |   |              |            | |200,000 Dr. |200,000 Cr. |

|Journal entry for 2010 |348,000 Dr. |240,000 Cr. |0 |0 |108,000 Cr. | | |

|Accumulated OCI, Dec. 31, 2009 | | | | |              |                 |                 |

|Balance, Dec. 31, 2010 | | | | |408,000 Cr. |4,900,000 Cr. |4,492,000 Dr. |

|Additional PSC, 1/1/2011 | | |500,000 Dr. | | | 500,000 Cr. | |

|Balance, Jan. 1, 2011 | | | | | |5,400,000 Cr. | |

|Service cost |180,000 Dr. | | | | |180,000 Cr. | |

|Interest cost** |540,000 Dr. | | | | |540,000 Cr. | |

|Actual return |260,000 Cr. | | | | | |260,000 Dr. |

|Unexpected loss*** |99,360 Cr. | | |99,360 Dr. | | | |

|Amortization of PSC |90,000 Dr. | | 90,000 Cr. | | | | |

|Contributions | |285,000 Cr. | | | | |285,000 Dr. |

|Benefits |   |   |              |            |              |280,000 Dr. |280,000 Cr. |

|Journal entry for 2011 |450,640 Dr. |285,000 Cr. |410,000 Dr. |99,360 Dr. | 675,000 Cr. | | |

|Accumulated OCI, Dec. 31, 2010 | | |           0 |         0 |              |                 |                |

|Balance, Dec. 31, 2011 | | |410,000 Dr. |99,360 Dr. |1,083,000 Cr. |5,840,000 Cr. |4,757,000 Dr. |

*$450,000 = $4,500,000 X 10%.

**$540,000 = $5,400,000 X 10%.

***$99,360 = ($4,492,000 X .08) – $260,000.

(b) Journal Entry (2011)

Pension Expense 450,640

Other Comprehensive Income (PSC) 410,000

Other Comprehensive Income (G/L) 99,360

Cash 285,000

Pension Asset/Liability 675,000

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