At the end of Year 2, the pension benefit obligation for the design team was $4,131,000 and the plan was fully funded (i.e. plan assets were also $4,131,000). They also had no balance in accumulated other comprehensive income for pensions. Because of this, the pension did not appear on Terrys Year 2 balance sheet. The pension expense and contributions for Year 3 have not yet been recognized.On December 31st, Terry contributed $1,562,000 to managements 401(k) and $520,506 to the designers pension fund. On that same day, Terry received the following information from their actuarial firm:

1) The annual service cost was $99,900

2) The expected return on plan assets was 7.0% and the discount rate on the pension benefit obligation was 6.0%.

3) The actuarial adjustment to the obligation for the year reduced the projected obligation by $39,960.

The plans administrator reported that the plan paid out $598,582 in benefits for the year and had an ending asset balance of $4,544,100.

Calculations

1) Calculate each of the three (3) ratios before you make any adjustments.

2) Fill out a pension worksheet for the changes to the defined benefit pension.

3) Make the appropriate journal entries, if any, to account for the pension costs (including any necessary changes to income tax expense). Assume that compensation for the design team is recorded as part of R&D Expense.

4) Make any necessary changes to the financial statements. Please see the hints about the special adjustment to the Statement of Cash Flows.

5) Calculate the three (3) ratios after you make any adjustments