Prepare a solution in Excel to the following assignment. Your solution will be graded for accuracy. This is an individual assignment; however, you may discuss it with class members to formulate your solution (collaboration is encouraged ). The solution you ultimately turn in, however, should be your own work product. The Kensington Company started a defined benefit pension plan on January 1, 20X1. The plan requires no contribution from the employee and offers immediate full vesting. Employees are given credit for up to 7 years of service prior to the initiation of the plan. Retirement benefits are equal to 4% of the average of the last 4 years of an employees earnings, for each year of service that qualifies for benefits.

The following information relates to the pension plan.

The settlement rate is 6%.

The assumed rate of return on plan assets is 8%.

Benefits are paid to retirees at the end of each year.

Annual pension funding is equal to $18,700. Funding takes place at the end of each year.

On January 1, 20X1, the pension is initially funded with $46,000.

Laustin D. Woods is the only employee currently covered by the pension plan. Mr. Woods worked for the company for 18 years prior to the initiation of the plan. Mr. Woods is expected to work 13 years while earning pension benefits before retiring. The company estimates that Mr. Woods will collect pension benefits for 11 years after he retires. Mr. Woods expected compensation over the last 4 years of his employment are as follows:

Retirement year $120,000

1 st year prior to retirement year 122,000

2 nd year prior to retirement year

125,000

3 rd year prior to retirement year 128,000

Mr. Woods elected to receive early withdrawals or payments from the pension plan in 20X1, 20X2, and 20X3 of $800 at the end each year (prior to retirement while working for Kensington).

Required: 1. Calculate net pension expense for 20X1, 20X2 and 20X3 and prepare the journal entries required to record pension related activities for each year (be sure to include the entry for initial funding).

2. Prepare a schedule, as covered in class, which identifies the changes in the PBO and Plan Asset account balances and the funded status for 20X1, 20X2 and 20X3.

3. Now assume that the actual return on plan assets in 20X2 was $6,230 higher than the projected return an actuarial adjustment increased the PBO by $32,580. Calculate pension expense for 20X2 and 20X3. If pension expense is unchanged in 20X2 and/or 20X3 from the amounts determined in item 1, explain why