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.CHART OF ACCOUNTS Baron Company General Ledger ASSETS REVENUE 111 Cash 411 Sales Revenue 121 Accounts Receivable 141 Inventory EXPENSES 152 Prepaid Insurance 500 Cost of Goods Sold 181 Equipment 511 Insurance Expense 198 Accumulated Depreciation 512 Utilities Expense 521 Salaries Expense LIABILITIES 522 Pension Expense 211 Accounts Payable 532 Bad Debt Expense 231 Salaries Payable 540 Interest Expense 250 Unearned Revenue 541 Depreciation Expense 251 Accrued/Prepaid Pension Cost 559 Miscellaneous Expenses 261 Income Taxes Payable 910 Income Tax ExpenseGeneral Journal Prepare the journal entries to record the pension expense for 2016 and 2017 on December 31 of each year. Additional Instructions Record 2016 entries on page 2016 and 2017 entries on page 2017.*$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-Cost 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-yearT 9 =.Projected-benefit obligation of for-2016-x -Discount rate, also called-settlement rate, of for- 20161 =.Interest cost (expense) of for-20161 B 100 =0.08T =-$120,000-x-0.081 =-$9.6009 *$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 on Pension plan assets-x-Expected rate of return (Expected-long-term- (and actual) rate of return on plan assets) [ = total-Expected (Actual) return on Pension plan assets of for current-year f =.Expected-(Actual) return on Pension plan assets x-Expected rate of return (Expected-long-term- (and-actual) rate of return on plan assets) T = total Expected (Actual) return on-Pension plan assets of for-20161100 =-0.08T =-$120,000-x-0.081 =-$9,6009 *$9,600 is total-Expected (Actual) return on -Pension plan assets of for-20161 Service cost (expense) + =$160,0009 Add:-Interest cost (expense) + -+ =+$..-9,600T Total-Interest cost (expense)+ $169,0009 Deduct: Expected (Actual) return + + =-$----9.6009 Pension expense -$160,0009 *$165,000 is Contributions (Amount funded) of for-2016 *$160,000 is-Pension expense of for-20161 =$165,000---$160,0001 =-$5,0009Adjusting Journal Entry! Datea Account-Title & Explanation Post-Ref.p Debito Credito Dec.-31, 20160 Pension expense.(E+)0 $160.0000 Accrued/Prepaid-Pension cost (A+)0 $5,0000 Cash-(A-). D $165.0000 Recorded pension expense for-2016.0 Because Baron Company funds.$165,000 in 2016 when the Pension expense is $160,000, and. recognizes an asset, Accrued/Prepaid -Pension-Cost, of-$5,000.--Therefore, Barons Company's- accountant would have to record (post) and report a pension asset-when the projected-benefit- obligation (PBO), (the actuarial present value, or present value of its pension benefits), is smaller- than the fair value of pension plan assets. T At 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- $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. Baron Company reports this overfunded amount as its pension plan asset, Prepaid-Pension Cost, on its December-31,-2016, balance sheet."| 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. --Thus, Barons-Company's accountant would have to- record (post) and report a pension-liability when the projected benefit obligation (PBO), (the- actuarial present value, or present value of its pension benefits), is higher than the fair value of- pension plan-assets. T