Question

Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2018 are as follows: ( millions) $ 540 350 PBO balance, January 1 Plan assets balance, January 1 Service cost Interest cost Gain from change in actuarial assumption Benefits paid Actual return on plan assets 55 35 38 (48) 30 Contributions 2018 45 The expected long-term rate of return on plan assets was 10 %. There were no AOCI balances related to pensions on January 1, 2018, but at the end of 2018, the company amended the pension formula creating a prior service cost of $19 million. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) Required: 1. Calculate the pension expense for 2018. 2. Prepare the journal entry to record pension expense, gains or losses, prior service cost, funding, and payment of benefits for 2018. 3. What amount will Electronic Distribution report in its 2018 balance sheet as a net pension asset or net pension liability?

Answer 1

Electronic Distribution Requirement 1 Requirement 2 ($ in millions) Debit in $ Credit in $ Service cost Interest cost Expected return on the plan assets ($30 actual, plus $5 loss) Amortization of prior service cost Amortization of net gain or net loss-AOCI Pension expense Journal Enteries Trans. Particulars 1 Pension expense (calculated above) a/c Dr. Plan assets (expected return on assets: 10% x $350) a/c Dr. To PBO ($55 service cost +$355 interest cost) 35 90 2 Prior service cost-Oci (from 2018 amendment) a/c Dr. То РВО 19 350 x 10% = 35 - 30 = 5 3 PBO a/c Dr. To Gain-Ocı* (change in assumption) Requirement 3 38 Loss-OCI ($30 actual return-$35 expected return) a/c Dr. To Plan assets PBO balance, January 1 Service cost Interest cost Gain from change in actuarial assumption Prior service cost (new) Benefits paid PBO balance, December 31 5 Dr. Plan assets a/c To Cash (funding contribution) 45 6 Dr. 48 PBO a/c To Plan assets (retiree benefits) 48 350 Plan assets balance, January 1 Actual return on plan assets Contributions 2018 Benefits paid Plan assets balance, December 31 45 -48 377 Because the plan is underfunded, Electronic Distribution will report a net pension liability: PBO balance, December 31 Plan assets balance, December 31 Net pension liability 563 -377 186