The following information is available from John Gammon Company relating to its defined benefit pension plan:
Balances as of January 1, 2012:
Pension obligation liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,300
Pension fund assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,800
Activity for 2012:
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 550
Contributions to pension fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Benefit payments to retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
Pension-related interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344
Required:
1. Compute the amount of pension expense to be reported on the income statement for 2012.
2. Determine the net pension amount to be reported on the balance sheet at the end of the year. Note: The benefit payments to retirees are made out of the pension fund assets.
These payments reduce both the amount in the pension fund and the amount of the remaining pension obligation.
3. Interpretive Question: You are an employee of John Gammon and have just received the above information as part of the company’s annual report to the employees on the status of the pension plan. Does anything in this information cause you concern? Explain.