Question

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the following information: ($ in millions) $ 400 64 Projected Benefit Obligation Balance, January 1 Service cost Prior service cost Interest cost(5.0%) Benefits paid Balance, December 31 16 20 (47) $ 453 ($ in millions) $ 270 29 Plan Assets Balance, January 1 Actual return on plan assets Contributions 2018 Benefits paid Balance, December 31 64 (47) $ 316 The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2018. At the end of 2018, Lacy amended the pension formula creating a prior service cost of $16 million. Required: 1. Determine Lacy's pension expense for 2018. 2. Prepare the journal entry(s) to record Lacy's pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018.

Answer 1

1.

	($ in millions)
Service cost	$64
Interest cost	$20
Expected return on the plan assets ($29 actual, less $2 gain)	($27)
Amortization of prior service cost	$0*
Amortization of net gain or net loss—AOCI	$0
Pension expense	$57

* Since the amendment was at the end of the year, there is no amortization of prior service cost in 2018.

2.

Event	General Journal	Debit	Credit
1	Pension expense	$57
	Plan assets	$27
	PBO ($64 service cost + $20 interest cost)		$84
2	Plan assets	$2
	Gain—OCI($29 actual return on assets - $27 expected return) –$27 expected return)		$2
3	Prior service cost—OCI	$16
	PBO		$16
4	Plan assets	$64
	Cash		$64
5	PBO	$47
	Plan assets		$47