2. Ex. 19-05 Instructions Baron Company adopted a defined benefit pension plan on January 1, 2015. The following information pertains to the pension plan for 2016 and 2017: 2016 2017 Service cost $160,000 $172,000 Projected benefit obligation (1/1) 120,000 289,600 Plan assets (1/1) 120,000 294,600 Company contribution (funded 12/31) 165,000 175,000 Discount rate 8% 8% Expected long-term (and actual) rate of return on plan assets 8% 8% There are no other components of Baron's pension expense. Required: 1. Compute the amount of Baron's pension expense for 2016 and 2017. 2. Prepare the journal entries to record the pension expense for 2016 and 2017.Feedback Check My Work Components of Pension Expense Service Cost Present Value of Benefits Earned During the Year Using the Discount Rate Interest Cost Projected Benefit Obligation at Beginning of the Year x Discount Rate Expected Return on Plan Assets Fair Value of Plan Assets at the Beginning of the Year x Expected Long-Term Rate of Return on Plan Assets Amortization of Prior Service Cost Present Value of Additional Benefits Granted at Adoption or Modification of the Plan Amortized over the Remaining Service Lives of Active Employees Gain or Loss Immediate Recognition or Amortization of the Cumulative Net Gain or Loss from Previous Periods Using the Corridor Method or Other Reasonable Methods*$160,000 is-Service-cost-(expense) of for-20161 *$120,000 is Projected-benefit obligation of for .20161 *$120,000-is Expected (Actual) return on Pension plan assets of for-20161 *$165,000is Contributions (Amount-funded) of for-20161 *?-is Interest cost-(expense) and/or Interest cost-(expense) of for Projected-Benefit-Obligation at- the end of December-31,-20161 #8%-is Discount rate, also called settlement rate of for-20161 #8%-is Expected-rate of return (Expected-long-term (and actual) rate of return on plan assets)- of for-20161 Projected-benefit obligation is the present value of the future retirement payments earned by the employees to date (based on their expected future compensation.levels).I Interest Cost Formula T =.Projected-Benefit-Obligation at the Beginning of the Period x Discount rate =.Interest Costf Calculation of Interest cost (expense) of current year:=-Projected-benefit obligation of for year x-Discount rate, also called settlement rate, of for year =.Interest cost (expense) of for years 8 100 =0.087 =-$120,000-x-0.081 =-$9.600% *$9,600 is Interest-cost-(expense) of for-20161 Calculation of Expected (Actual) return on Pension plan-assets of for current year:" =.Expected-(Actual) return x -Expected rate of return (Expected-long-term (and actual) rate of return on plan assets)'T =.Expected-(Actual) return on Pension plan assets of for year f B 100 =-0.08T =$120,000-x-0.081 =-$9,6009=-$120,000-x-0.081 =-$9.6009 *$9,600 is Expected-(Actual) return on-Pension plan assets of for-20161 Service cost (expense) + -$160,0009 Add: .Interest cost (expense) + -+ --S.---9,6009 Total-Interest cost (expense)+ -$169,0009 Deduct: Expected (Actual) return + + =--$----9.6009 Pension expense - =$160,0009 *$165,000 is Contributions (Amount funded) of for-20161 *$160,000-is Pension-expense of for-20161 =-$165,000--$160,0001 =-$5,0009 Adjusting Journal Entrya Dated Account-Title & Explanation Post-Ref.a Debita Credita Dec. .31, 20160 Pension expense.(E+)0 $160,0000 Accrued/Prepaid-Pension cost (A+)0 $5,0000 Cash -(A-). a $165,00020 Recorded pension expense for-2017.0At the end of-2016, the $160,000 projected-benefit obligation is-$5,000-less than the-$165,000, the fair value of the pension plan assets, so the pension plan is overfunded by $5,000. -The- V$5,000-debit-balance in Accrued/Prepaid-Pension-Cost reflects the overfunded status of the. pension plan and no adjustment is necessary-because there are no prior service costs or gains or- losses.T Baron Company reports this overfunded amount as its pension plan asset, Prepaid-Pension Cost, on its December-31, -2016, balance sheet.T v If the pension plan were underfunded-because the projected-benefit obligation (or projected. obligation) exceeded the fair value of pension plan assets, Baron Company would recognize a. noncurrent liability, Accrued-Pension-Cost.J