Question

Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2018 (the end of Beale's fiscal year), the following pension-related data were available: Projected Benefit obligation Balance, January 1, 2018 Service cost Interest cost, discount rate, 54 Gain due to changes in actuarial assumptions in 2018 Pension benefits paid Balance, December 31, 2018 (in millions) $ 540 56 (11) (27) $ 585 ($in millions) $ 560 Plan Assets Balance, January 1, 2018 retual return on plan assets (Expected return on plan assets, $42) Cash contributions Pension benefits paid Balance, December 31, 2018 37 (27) January 1, 2018, balances Pension asset Prior service cost-AOCI (amortization 55 per year) Net gain-AOCI (any amortization over 10 years) (Sin millions) $20 25 Required: 1. to 3. Prepare the 2018 journal entry to record pension expense, to record any 2018 gains and losses and the contribution to plan assets and benefit payments to retirees. 4. Determine the balances at December 31, 2018, in the PBO, plan assets, the net gain-AOCI, and prior service cost-AOC (Hint: You might find T-accounts useful.) 5. What amount will Beale report in its 2018 balance sheet as a net pension asset or net pension liability for the funded status of the plan? Complete this question by entering your answers in the tabs below.

Answer 1

Part 1 & 3

Event	General journal	Debit	Credit
1	Pension expense	42
	Plan assets	42
	Amortization of net gain—OCI	4
	Amortization of prior service cost—OCI		5
	PBO		83
2	PBO	11
	Gain—OCI		11
3	Loss—OCI	5
	Plan assets		5
4	Plan assets	78
	Cash		78
5	PBO	27
	Plan assets		27

Part 4

Balances on Dec. 31, 2018

($ in millions)

PBO	585
Plan assets	648
Net gain – AOCI	97
Prior service cost - AOCI	20

Part 5

Balance Sheet as on 2016

Net pension asset

$63 millions

NOTES:

PBO = Service cost + interest cost = 56+27 = 83

Pension expense:

Service cost	56
Interest cost	27
Expected return on the plan assets ($37 actual, plus $5 loss)	(42)
Amortization of prior service cost	5
Amortization of net gain	(4)
Pension expense	42

Computation of net gain amortization:

Net gain—AOCI (previous gains exceeded previous losses)	96
10% of $560 plan assets (greater than $540 PBO)	(56)
Amount to be amortized	40
	10 years
Amortization	4

Loss—OCI = actual return on assets – expected return = $5

PBO:

		540	Jan. 1 balance
		56	Service cost
		27	Interest cost
New gain	11
Benefits paid	27
		585	Dec. 31 balance

Plan Assets:

Jan. 1 balance	560
Expected return	42
Cash funding	78
		5	New loss
		27	Benefits paid
Dec. 31 balance	648

SHAREHOLDERS' EQUITY: ACCUMULATEDOTHER COMPREHENSIVE INCOME Net Gain—AOCI

		96	Jan. 1 balance
		11	New gain
New loss	5
Amortized in 2018	5
		97	Dec. 31 balance

Prior Service Cost—AOCI

Jan. 1 balance	25
		5	Amortized in 2018
Dec. 31 balance	20

Part 5

	Plan assets	-	PBO	=	Net pension asset
2017	560	-	540	=	20
2018	648	-	585	=	63