Question

Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2021. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. The actual return was also 10% in 2021 and 2022.* A consulting firm, engaged as actuary, recommends 6% as the appropriate discount rate. The service cost is $150,000 for 2021 and $200,000 for 2022. Year-end funding is $160,000 for 2021 and $170,000 for 2022. No assumptions or estimates were revised during 2021. * We assume the estimated return was based on the actual return on similar investments at the inception of the plan and that, since the estimate didn't change, that also was the actual rate in 2022. Required: Calculate each of the following amounts as of both December 31, 2021, and December 31, 2022: (Enter your answers in thousands (i.e., 200,000 should be entered as 200).) December 31, December 31, 2021 2022 1. Projected benefit obligation 2. Plan assets 3. Pension expense 4. Net pension asset or net pension liability

Answer 1

Answer-

1.

Projected Benefit Obligation	($)
	Balance, January 1, 2021	$    0
Service cost	150,000
Interest cost (6% x $0)	0
Benefits paid	(0)
Balance, December 31, 2021	$150,000
Service cost	200,000
Interest cost (6% x $150,000)	9,000
Benefits paid	(0)
Balance, December 31, 2022	$359,000

 2. 

Plan Assets
	Balance, January 1, 2021	$    0
Actual return on plan assets (10% x $0)	0
Contributions, 2021	160,000
Benefits paid	(0)
Balance, December 31, 2021	$160,000
Actual return on plan assets (10% x $160,000)	16,000
Contributions, 2022	170,000
Benefits paid	(0)
Balance, December 31, 2022	$346,000

 3. Pension expense – 2021

Service cost	$150,000
Interest cost (6% x $0)	0
Expected return on the plan assets (10% x $0)	0
Pension expense	$150,000

Pension Expense – 2022

 

Service cost	$200,000
Interest cost (6% x $15,000)	9,000
Expected return on the plan assets (10% x $160,000)	(16,000)
Pension expense	$193,000

 4. Net pension asset/liability 

PBO	$150,000
	Plan assets	160,000
Net pension asset, Dec. 31, 2021	$ 10,000
PBO	$359,000
	Plan assets	346,000
Net pension liability, Dec. 31, 2022	$ 13,000