On January 1. 1979. Kayco Company instituted a pension plan. The past-(prior)service cost - the present value of the past-service benefits awarded to current employees-is \(\$ 1,200,000\). The present value of the benefits earned by employees during both 1979 and 1980 is \(\$ 700,000\) at the end of each of those years. Kayco Company designates the Retirement Insurance Company as the trustee of the pension plan and deposits all funding payments with the insurance company at the end of each year. Interest on unfunded liabilities is accrued at a rate of 4 percent per year. Kayco Company plans to fund an amount each year equal to the pension expense recognized for the year.

Show the journal entries that Kayco Company would make on December 31, 1979 and 1980, for its pension plan and related expenses under the following two assumptions.

a Prior-(past)service cost is amortized over 10 years.

b Prior-(past)service cost is amortized over 30 years.

c What is the present value on January 1, 1979, of the cash outlays related to prior-service costs under each of the assumptions above, if the outlays are discounted at 4 percent per year? At 8 percent per year?