Question

Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2018 are as follows:

	($ millions)
PBO balance, January 1		$	500
Plan assets balance, January 1			450
Service cost			85
Interest cost			55
Gain from change in actuarial assumption			30
Benefits paid			(40)
Actual return on plan assets			20
Contributions 2018			75

The expected long-term rate of return on plan assets was 6%. There were no AOCI balances related to pensions on January 1, 2018, but at the end of 2018, the company amended the pension formula creating a prior service cost of $15 million. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Required:

1. Calculate the pension expense for 2018.
2. Prepare the journal entry to record pension expense, gains or losses, prior service cost, funding, and payment of benefits for 2018.
3. What amount will Electronic Distribution report in its 2018 balance sheet as a net pension asset or net pension liability?

Answer 1

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Answers are highlighted in yellow: Solution: Service Cost Interest Cost Expected return on the plan assets (450*6%) Amortization of prior service cost Amortization of net gain or net loss - AOCI Pension Expense $ $ $ $ 85 55 -27 - $ 113 2) Credit $ $ Debit 113 27 $ 140 $ 15 $ 15 $ 30 Naming convention is not available, can be slightly different: Jounal entries Event Account title and explanation Pension expense Plan assets (Expected return on assets) PBO (85+55) (To record the pension expense) Prior service cost - OCI PBO (To record the Prior service cost) PBO Gain - OCI (To record the gain from change in actuarial assumption) Loss - OCI (450*6%) - (20) Plan assets (To record the gain or loss on assets) Plan assets Cash (To record the funding) PBO Plan assets (To record the retiree benefits) $ 75 $ 75 40 $ 40

PBO balance, January 1 Service Cost Interest Cost Gain from change in actuarial assumption Prior service cost (new) Benefit paid PBO balance, December 31 15 $ -40 585 Plan assets balance, January 1 Actual return on plan assets Contributions Benefits paid Plan assets balance, December 31 $ $ $ $ 450 20 75 -40 505 PBO balance, December 31 Plan assets balance, December 31 Net pension liability $ $ $ 585 505 80