Question

U.S. Metallurgical Inc. reported the following balances in its financial statements and disclosure notes at December 31, 2017.

Plan assets	$440,000
Projected benefit obligation	250,000

U.S.M.’s actuary determined that 2018 service cost is $64,000. Both the expected and actual rate of return on plan assets are 10%. The interest (discount) rate is 6%. U.S.M. contributed $124,000 to the pension fund at the end of 2018, and retirees were paid $48,000 from plan assets. (Enter your answers in thousands (i.e., 10,000 should be entered as 10).)

Required:

1 to 4. Determine the following amounts at the end of 2018.
5. Prepare journal entries to record the pension expense, funding of plan assets, and retiree benefit payments.

Answer 1

Solution:

1. Pension expense:
Service cost	$64,000
Interest cost (250,000*6%)	$15,000
Return on plan assets (440,000*10%)	($44,000)
Pension expense	$35,000
2. Projected benefit obligation:
Beginning balance	$250,000
Service cost	$64,000
Interest cost	$15,000
Benefit paid	($48,000)
Ending balance	$281,000
3. Plan assets:
Beginning balance	$440,000
Actual return on plan assets	$44,000
Contribution	$124,000
Benefit paid	(48,000)
Ending balance	$560,000
4. Net pension assets or liability:
Projected benefit obligation	$281,000
Plan assets	$560,000
Net pension asset	$279,000

.

Journal entries

No	Particulars	Debit($)	Credit($)
1.	Pension expense A/c Dr	$35,000
	Plan assets A/c Dr	$44,000
	To Projected benefit obligation A/c		$79,000
2.	Plan assets A/c Dr	$124,000
	To Cash A/c		$124,000
3.	Projected benefit obligation A/c Dr	$48,000
	To Plan Assets A/c		$48,000

Answer 2