On January 1, 2007 the Cromwell Company adopted a defined benefit plan for its employees. All the employees are the same age, retire at the same time, and have the same life expectancy after retirement. The following are the relevant facts concerning the pension plan factors and the employee characteristics:

Pension Plan Factors

Benefit formula ..................Average of last four years’ salary ×

...........................Number of years of service × 0.025

Expected average of last four years’ salary .............$80,000 per employee

Annual pension benefit earned each year of service by each employee.$80,000 × 0.025 = $2,000*

Date of computation of pension expense and pension funding .......December 31

Amount funded each year .................Equal to annual service cost

Discount rate .............................10%

Expected long-term (and actual) rate of return on plan assets .........9%

..............................*Paid at end of each year

Employee Characteristics

Number of employees .............60

Age of employees ................35

Years to retirement (at end of 2007) ........25

Years of life expectancy after date of retirement ...14

For the years 2007 through 2011 the company experienced no net gain or loss in regard to the pension plan. On January 1, 2010, however, the company agreed to an amendment of the pension plan. This amendment changed the factor in the pension benefit formula from 0.025 to 0.03. This amendment was made retroactive to the adoption of the plan. At the end of years 2007 through 2011 the company did not have an additional pension liability.

Required

1. Prepare a schedule to compute the Cromwell Company’s pension expense for 2007 through 2011. Round to the nearest dollar.

2. Prepare the year-end journal entries to record the company’s pension expense for 2007 through 2011.

3. Determine the balance in the Prepaid/Accrued Pension Cost account on December 31, 2011. Indicate whether it is an asset or liability.