Reference no: EM132937630
Question - American Household Products, Inc. on January 1, 2022 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 average remaining service life of employees is 12 years. An actuarial consulting firm has indicated that the present value of the projected benefit obligation on January 1, 2022 was $5,040,000. There are no plan assets on the date the plan is initiated.
On December 31, 2022 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
Projected benefit obligation 6,043,200
Plan assets (at fair value) 1,600,000
Expected return on plan assets 9%
Settlement rate 8%
Required -
a. Compute the pension expense recognized in 2022. Assume the prior service cost is amortized over the average remaining service life of the employees.
b. Show the journal entries to reflect accounting for the company's pension plan for the year ended December 31, 2022.
c. Indicate the amounts that are reported on the income statement and the balance sheet for 2022.