Question

The Kollar Company has a defined benefit pension plan. Pension information concerning the fiscal years 2018 and 2019 are presented below ($ in millions): Information Provided by Pension Plan Actuary: Projected benefit obligation as of December 31, 2017 = $3,500. Prior service cost from plan amendment on January 2, 2018 = $700 (straight-line amortization for 10-year average remaining service period). Service cost for 2018 = $660. Service cost for 2019 = $710. Discount rate used by actuary on projected benefit obligation for 2018 and 2019 = 10%. Payments to retirees in 2018 = $520. Payments to retirees in 2019 = $590. No changes in actuarial assumptions or estimates. Net gain—AOCI on January 1, 2018 = $380. Net gains and losses are amortized for 10 years in 2018 and 2019. Information Provided by Pension Fund Trustee: Plan asset balance at fair value on January 1, 2018 = $2,500. 2018 contributions = $680. 2019 contributions = $730. Expected long-term rate of return on plan assets = 12%. 2018 actual return on plan assets = $230. 2019 actual return on plan assets = $280. Required: 1. Calculate pension expense for 2018 and 2019. 2. Prepare the journal entries for 2018 and 2019 to record pension expense. 3. Prepare the journal entries for 2018 and 2019 to record any gains and losses and new prior service cost. 4. Prepare the journal entries for 2018 and 2019 to record the cash contribution to plan assets and benefit payments to retirees.

Answer 1

Part 1	Calculation of pension expense for the year 2018 & 2019
					($ in millions)
	Description			2018	2019
	Service Cost			660.00	710.00
	Interest Expense on Present benefit Obligation
	For the year 2018 = 3500*10/100			350.00
	For the year 2019 = 3990*10/100 (refer note 1 below)				399.00
	Expected return
	For the year 2018 = 2500*12/100			(300.00)
	For the year 2019 = 2890*10/100 (refer note 2 below)				(346.80)
	Amortization of Prior year service cost
	700/10			70.00	70.00
	Amortization of Net Gain on AOCI
	380/10			(38.00)	(38.00)
	Pension Expense			742.00	794.20
Notes
1	Projected benefit Obligation is calculated as follows:
		Amount
	Beginning Balance	3,500.00
	Add:- service cost	660.00
	Add:- Interest cost	350.00
	Less:- Payment made for Retiree's	(520.00)
	Ending Balance	3,990.00
2	Plan Asset value is calculated as follows
		Amount
	Beginning Balance	2,500.00
	Add:- Actual rate of return	230.00
	Contribution made to the plan	680.00
	Less:- Payment made for Retiree's	(520.00)
	Ending Balance	2,890.00

Part 2	Journal entry to record pension expense for the year 2018 & 2019
	For 2018		($ in millions)
	Pension Expense A/C	Dr.	742.00
	To Pension Liability A/C	Cr.	(70.00)
	To Prior service cost A/C	Cr.	(672.00)
	(to record the Pension expense and amortize prior service cost)
	For 2019		($ in millions)
	Pension Expense A/C	Dr.	794.20
	To Pension Liability A/C	Cr.	(70.00)
	To Prior service cost A/C	Cr.	(724.20)
	(to record the Pension expense and amortize prior service cost)

Part 3	Journal entries for 2018 and 2019 to record any gains and losses and new prior service cost
				($ in millions)
		2018	2019
	Expected return on Plan Assets	300.00	346.80
	Actual Return on Plan Assests	230.00	280.00
	Excess/(Deficit)	(70.00)	(66.80)	Notional gain/loss
Part 4	Journal entries for 2018 and 2019 to record the cash contribution to plan assets and benefit payments to retirees
	Cash Contribution to plan Assets			($ in millions)
	For 2018
	Pension plan Asset A/C	Dr.	680.00
	To Bank A/C	Cr.	(680.00)
	For 2019
	Pension plan Asset A/C	Dr.	730.00
	To Bank A/C	Cr.	(730.00)
	Benefit payments to retirees
	For 2018
	Deferred pension obligation A/C	Dr.	520.00
	To Pension plan Asset A/C	Cr.	(520.00)
	For 2019
	Deferred pension obligation A/C	Dr.	590.00
	To Pension plan Asset A/C	Cr.	(590.00)