15

ABC Corporation provides a defined benefit pension plan for its employees. A combination adjusting entry should be made to correctly account for this type of pension

plan given the following items of information for the 2014 plan year, including the recording of pension expense and the employer's contribution to the pension plan in 2014.

Note: Use the summary entry method as demonstrated and discussed in the chapter lectures on pension accounting to prepare the adjusting entry.

Pension asset/liability (January 1)

$0

Actual return on plan assets

$40,000

Expected return on plan assets

$20,000

Contributions (funding) in 2014

$37,000

Fair value of plan assets (December 31)

$75,000

Settlement rate

10%

Projected benefit obligation (January 1)

$0

Service cost

$60,000

Benefits paid in 2014

$0

*For purposes of financial statement presentation, consider Pension Expense as an operating item and any resulting Pension Asset/Liability as long-term in nature.

16

On December 31, 2014, ABC Corporation issued 1,000 shares of restricted stock to its Chief Financial Officer. ABC stock had a fair value (closing market price) of

$10 per share on December 31, 2014. Additional information is as follows:

a. The service period related to the restricted stock is 2 years.

b. Vesting occurs if the CFO stays with the company for a two-year period.

c. The par value of the common stock is $3 per share.

Make the appropriate accounting entry as of the grant date, 12/31/14. Note: use the alternative method as described in your textbook for deferred compensation.

Do this step after preparing the Income Statement except for the Income taxes line: (You need to calculate Income Before Income Taxes in order to calcualte total Income Tax Expense)

17

Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15.

However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full

on the return's March 15, 2015 due date.

ABC's income tax rate is 40%. The entire year's income tax expense was estimated at the beginning of 2014 to be $69,600,

so January through November income tax expense recognized amounts to $63,800 (11/12 months).

Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents

tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities.

Based on the income before income taxes figure from the income statement, record December's income tax expense

so that the entire year's total tax expense is correct.