In: Accounting
Rand Medical has a defined benefit pension for which the following pension-related data were available on December 31, 2005 (the end of the company’s fiscal period): Projected benefit obligation (PBO): Balance, January 1, 2005 $1,800,000 Service cost 369,000 Interest cost, discount rate, 10% 180,000 Losses (gains) due to changes in actuarial assumptions in 2005 0 Pension benefits paid (189,000) Balance, December 31, 2005 $2,160,000 Plan assets: Balance, January 1, 2005 $ 1,350,000 Actual return on plan assets 135,000 (Expected return on plan assets, $120,000) Contributions 450,000 Pension benefits paid (189,000) Balance, December 31, 2005 $ 1,746,000 January 1, 2005, balances: Unrecognized past service cost (annual amortization $36,000) 216,000 Unrecognized net loss (amortization over 10 years, if needed) 210,000 Unrecognized transition cost 0 Intangible pension asset 0 Prepaid (accrued) pension cost (credit balance) $ (24,000) Required: 1. Calculate Rand’s 2005 pension expense. Show calculations. 2. Prepare Rand’s 2005 journal entry to record pension expense and funding. 3. Reconcile the funded status of the plan with the books at the end of 2005.
Part 1
PBO ($369000 service cost + $180000 interest cost) = $549000
Pension expense:
Service cost |
369000 |
Interest cost |
180000 |
Expected return on the plan assets ($40 actual, plus $4 loss) |
(120000) |
Amortization of prior service cost |
36000 |
Amortization of net loss |
19200 |
Pension expense |
484200 |
Computation of net gain amortization:
Net gain—AOCI (previous gains exceeded previous losses) |
210000 |
10% of $180000 PBO (greater than $135000 Plan assets) |
(18000) |
Amount to be amortized |
192000 |
÷ 10 years |
|
Amortization |
19200 |
Part 2
Event |
General journal |
debit |
Credit |
1 |
Pension expense |
484200 |
|
Plan assets |
120000 |
||
Amortization of net loss—OCI |
19200 |
||
Amortization of prior service cost—OCI |
36000 |
||
PBO |
549000 |
||
(to record pension expense) |
|||
2 |
Plan assets |
450000 |
|
Cash |
450000 |
||
(to record funding of plant assets) |
Part 3
Reconcilation Schedule for December 2005
Projected benefit obligation |
(2160000) |
Plan assets at fair value |
1746000 |
Funded status |
(414000) |
Unrecognized prior service cost |
36000 |
Unrecognized net loss (debit) |
19200 |
Prepaid / accured pension cost |
(358800) |
Adjustment required to recognized minimum liability |
(24000) |
Accured pension cost liability recognized in balance sheet |
(382800) |