EX 11-17 Pension plan entries

Wren 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 $141,500 for the quarter ended March 31.

a. Journalize the entries to record the accrued pension liability on March 31 and the payment to the funding agent on April 15.

b. How does a defined contribution plan differ from a defined benefit plan?

Answer:

a. Mar. 31 Pension Expense........................................... 141,500     Unfunded Pension Liability......................  141,500      To record quarterly pension cost.  
 Apr. 15 Unfunded Pension Liability.......................... 141,500     Cash............................................................  141,500  


b. In a defined contribution plan, the company invests contributions on behalf of the employee during the employee’s working years. Normally, the employee and employer contribute to the plan. The employee’s pension depends on the total contributions and the investment return on those contributions. In a  defined benefit plan, the company pays the employee a fixed annual percentage based on a formula. The employer is obligated to pay for (fund) the  employee’s future pension benefits.

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