Bartov Corporation has a defined contribution pension plan for its employees. Each year, Bartov contributes to the plan an amount equal to 4% of the employee payroll for the year. Bartov’s 2019 payroll was $400,000. Bartov also provides a life insurance benefit that pays a $50,000 death benefit to the beneficiaries of retired employees. At the end of 2019, Bartov estimates that its liability under the life insurance program is $625,000. Bartov has assets with a fair value of $175,000 in a trust fund that are available to meet the death benefit payments.
REQUIRED:
a. Prepare the journal entry at December 31, 2019, to record Bartov’s 2019 defined contribution to a pension trustee who will manage the pension funds for the firm’s employees.
b. What amount of liability for death benefit payments must Bartov report in its December 31, 2019, balance sheet? Explain.
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