Actuary and trustee reports indicate the following changes in the PBO and plan assets of White Inc. during 2016:
Prior service cost at January 1, 2016 from plan amendment at the beginning of 2013 [Amortization: $4,000 per year] | $68,000 |
Net Gain - AOCI at January 1, 2016 | $40,000 |
Average remaining service life of the active employee group | 15 years |
Actuary's discount rate | 5% |
Gain - from changes in actuarial assumptions | $5,000 |
2016 Pension Expense | $33,500 |
PBO | Plan Assets | ||
Beginning of 2016 | $240,000 | Beginning of 2016 | $250,000 |
Service cost | $41,000 | Return on plan assets, 8% [ 9% expected] | $20,000 |
Cash contributions | $35,000 |
Required:
A. Prepare the appropriate journal entries to record the expense and the cash contribution to plan assets.
B. Prepare the appropriate journal entries to record any 2016 gains and losses.
C. Where would you find the pension on White Inc.'s balance sheet at the beginning of 2016. What amount would you look for?
Source of pension expense:
Pension expense | Amount |
Service cost | 41,000 |
Interest cost | 12,000 |
PSC amortisation | 4,000 |
Return on plan assets | -22,500 |
OCI Gain amortisation | -1,000 |
Expense | 33,500 |
A
Journal:
Account | Nature | Statement | Debit | Credit | |
Pension expense | Service cost | Income statement | 41,000 | - | |
Pension expense | Interest cost | Income statement | 12,000 | - | |
Pension expense | PSC amortisation | Income statement | 4,000 | - | |
Pension expense | Expected return on plan asset | Income statement | - | 22,500 | |
Pension expense | OCI gain/loss amortisation | Income statement | - | 1,000 | |
AOCI net gain | Difference between actual return and expected return | Other comprehensive income | 2,500 | - | |
AOCI net gain | OCI gain/loss amortisation | Other comprehensive income | 1,000 | - | |
Pension asset/liability | Actual return | Balancesheet | 20,000 | ||
AOCI Prior service cost | PSC amortisation | Other comprehensive income | 4,000 | ||
Pension asset/liability | Pension expense | Balancesheet | 53,000 | ||
[Pension expense for the year recorded] |
Account | Debit | Credit | |
Pension asset/liability | 35,000 | ||
Cash | 35,000 | ||
[ Cash contributed to the pension fund] |
C
On non current assets section net pension asset can be found. Net amount will be $10,000.
Below is the pension worksheet:
Items | Annual pension expense | Cash | AOCI-PSC | OCI Gain | Pension asset/liability | Projected benefit obligation | Plan assets | |||||||
Amount | Dr/cr | Amount | Dr/cr | Amount | Dr/cr | Amount | Dr/cr | Amount | Dr/cr | Amount | Dr/cr | Amount | Dr/cr | |
Balance Jan 1, 2016 | 68,000 | Dr | 40,000 | Cr | 10,000 | Dr | 240,000 | Cr | 250,000 | Dr | ||||
Service cost | 41,000 | Dr | 41,000 | Cr | 41,000 | Cr | ||||||||
Interest cost | 12,000 | Dr | 12,000 | Cr | 12,000 | Cr | ||||||||
PSC amortisation | 4,000 | Dr | 4,000 | Cr | ||||||||||
Return on plan assets | 22,500 | Cr | 2,500 | Dr | 20,000 | Dr | 20,000 | Dr | ||||||
OCI Gain amortisation | 1,000 | Cr | 1,000 | Dr | ||||||||||
New prior service cost | - | Dr | - | Dr | Cr | |||||||||
Gain due to change in acturial assumptions | 5,000 | Cr | 5,000 | Dr | ||||||||||
Contributions | 35,000 | Cr | 35,000 | Dr | 35,000 | Dr | ||||||||
Benefits paid | - | Dr | - | Cr | ||||||||||
Jounral for 2016 | 33,500 | Dr | 35,000 | Cr | 4,000 | Cr | 1,500 | Cr | 2,000 | Dr | 48,000 | Cr | 55,000 | Dr |
Opening balance Jan 1, 2016 | 68,000 | Dr | 40,000 | Cr | 10,000 | Dr | 240,000 | Cr | 250,000 | Dr | ||||
Balance Dec 31, 2016 | 64,000 | Dr | 41,500 | Cr | 12,000 | Dr | 288,000 | Cr | 305,000 | Dr |
Gain amortization for the year is:
Corridor amortisation | ||
Ref | Particulars | Amount |
A | Opening OCI gain/ loss | 40000 |
Less: 10% of higher of plan assets or PBO | ||
Opening balance: | ||
Plan assets | 250000 | |
PBO | 240000 | |
B | higher of above | 250000 |
C | 10% of B | 25000 |
D= A-C | Amount subject to amortisation | 15000 |
E | Amortisation period | 15 |
F= D/E | Amortisation amount | 1000 |
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