Question

The Warren Group's pension cost is $46 million. This amount includes a $54 million service cost, a $33 million interest cost, a $46 million reduction for the expected return on plan assets, and a $5 million amortization of a prior service cost. Determine the components of pension expense that affects the net pension liability. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) 2 Service cost 2 Amortization of prior service cost 7 Interest cost 2 Expected return on plan assets Prepare the journal entry to record the pension cost. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).) View transaction list Journal entry worksheet Record pension expense. Note: Enter debits before credits. Event General journal Debit Credit

Answer 1

Net pension liability is the difference between PBO and plan assets. It is affected only by three components of pension expense which are service cost, interest cost and expected return on plan assets. Pension expense also include amortisation of a prior service cost but it does not affect PBO or plan assets and hence do not affect the net pension liability. In the question, the prior service cost has been reduced by $5 million. This reduction is reported as other comprehensive income in the statement of comprehensive income.

The components of pension expense that affects net pension liability are:

Service Cost

Interest Cost

Expected return on plan assets

Journal entry to record the pension cost:

Pension Expense Dr 46

Plan Assets Dr 46

To PBO 87

To Amortisation of prior service cost 5

(Being pension expense recorded)