The pension expense for the year 2025 is $116,964. The journal entry for pension expense would be a debit to Pension Expense and a credit to Cash or APIC - Minimum Pension Liability Adjustment.
The year-end balances in the related pension accounts would be PBO: $490,400, Plan Assets: $502,400, APIC - Minimum Pension Liability Adjustment: $116,964.
To compute the pension expense for the year 2025, we need to consider several factors. First, we calculate the interest cost by multiplying the projected benefit obligation (PBO) at the beginning of the year by the settlement rate.
In this case, the PBO is $490,400 and the settlement rate is 8%, so the interest cost would be $39,232. Next, we calculate the expected return on plan assets by multiplying the beginning plan assets by the expected return rate.
Here, the plan assets are $490,400 and the expected return rate is $48,000, so the expected return on plan assets would be $39,232. Lastly, we calculate the service cost, which is the increase in the PBO due to employee service during the year. In this case, the service cost is $38,500.
The pension expense can be calculated as the sum of these components, which would be $39,232 (interest cost) + $39,232 (expected return on plan assets) + $38,500 (service cost) = $116,964. The pension expense journal entry for 2025 would be:
- Debit Pension Expense: $116,964
- Credit Cash or APIC - Minimum Pension Liability Adjustment: $116,964
The year-end balances in the related pension accounts would be:
- PBO: $490,400
- Plan Assets: $502,400 ($490,400 + $48,000 - $32,500)
- APIC - Minimum Pension Liability Adjustment: $116,964 (credit balance)