As of January 1, 2011, information related to the defined benefit pension plan of Leffingwell Company was as follows:

PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,615,000

Fair value of pension assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513,500

Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000

Deferred net pension gain or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0

Pension data for the years 2011 and 2012 are listed as follows:

2011 Pension plan information:

Service cost as reported by actuaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $87,000

Contributions to pension plan . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000

Benefits paid to retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $132,000

Actual return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,350

Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,000

Actuarial change increasing PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000

Obligation discount rate . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11%

Long-term expected rate of return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%

2012 Pension plan information:

Service cost as reported by actuaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,000

Contributions to pension plan . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . $125,000

Benefits paid to retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,000

Actual return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,000

Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,667

Obligation discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11%

Long-term expected rate of return on pension plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%

As of January 1, 2012, the remaining expected service life of employees was 5.0 years. Also, Leffingwell uses the fair market value of pension plan assets at the beginning of the year as the market-related value of pension plan assets.

Instructions:

1. For both 2011 and 2012, prepare the pension note that discloses the component parts of pension expense as well as the items that combine to yield the net amounts reported in the balance sheet.

2. Prepare the summary journal entries for recording net pension expense and pension funding for 2011 and 2012.