You have the following information related to Chalmers Corporation’s pension plan:

a. Defined benefit, noncontributory pension plan.

b. Plan initiation, January 1, 20X3 (no credit given for prior service).

c. Retirement benefits paid at year-end with the first payment one year after retirement.

d. Assumed discount rate of 7%.

e. Assumed expected rate of return on plan assets of 9%.

f. Annual retirement benefit equals years of credited service × 0.02 × highest salary.

g. Chalmers made $1,200 contributions to the pension fund at the end of each year.

h. The actual returns were $0 and $48 in 20X3 and 20X4, respectively.

i. Information for Frank Bullitt, the firm’s only employee, follows:

Start date	January 1, 20X0
Expected retirement date	December 31, 20Y7 (15 years from plan inception)
Expected number of payments during retirement	20

Selected actual and expected salary levels:

Date	Salary Level
January 1, 20X0	$ 22,000
January 1, 20X3	27,000
January 1, 20X4	30,000
January 1, 20Y7	75,000

Required:

1. Calculate the service cost and the interest cost components of pension cost for 20X3 and 20X4.

2. Calculate the PBO at the end of 20X3 and 20X4.

3. Compute the fair value of plan assets for 20X3 and 20X4.

4. Compute funded status at December 31, 20X3, and December 31, 20X4.

5. Calculate pension expense for 20X3 and 20X4.

6. Prepare the required journal entries for 20X3 and 20X4.

7. Show how your answer for 20X3 would change if the plan had granted credit for prior service on January 1, 20X3.