Question

Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2018 (the end of Beale's fiscal year), the following pension-related data were available:

Projected Benefit Obligation	($ in millions)
Balance, January 1, 2018		$	620
Service cost			64
Interest cost, discount rate, 5%			31
Gain due to changes in actuarial assumptions in 2018			(15	)
Pension benefits paid			(31	)
Balance, December 31, 2018		$	669

Plan Assets	($ in millions)
Balance, January 1, 2018		$	640
Actual return on plan assets			41
(Expected return on plan assets, $46)
Cash contributions			82
Pension benefits paid			(31	)
Balance, December 31, 2018		$	732

January 1, 2018, balances:	($ in millions)
Pension asset	$	20
Prior service cost–AOCI (amortization $8 per year)		40
Net gain–AOCI (any amortization over 10 years)		104

  
Required:
1. to 3. Prepare the 2018 journal entry to record pension expense, to record any 2018 gains and losses and the contribution to plan assets and benefit payments to retirees.
4. Determine the balances at December 31, 2018, in the PBO, plan assets, the net gain–AOCI, and prior service cost–AOCI [Hint: You might find T-accounts useful.]
5. What amount will Beale report in its 2018 balance sheet as a net pension asset or net pension liability for the funded status of the plan?

Answer 1

1 to 3)

Calculation of Amortization of net gain :-

Particulars	Amount ($ millons)
Net Gain	104
Less : 10% of $640 plan assets	(64)
Amount to be Amortized (a)	40
Number of Years (b)	10 years
Amortization (a/b)	4

Calculation of Pension Expenses amount :-

Particulars	Amount ($ Millions)
Service Cost	64
Interest Cost	31
Amortization of Prior Service Cost	8
Amortization of Net Gain	(4)
Expected return on the plan assets	(46)
Pension Expense	53

Journal Entries :-

S no.	Particulars	Debit($)	Credit($)
1)	Pension Expense	53
	Plan Assets Expected Return	46
	Amortization of Net Gain	4
	Projected Benefit obligation ($64+$31)		95
	Amortization of Prior Service Cost		8
	(Being Record Pension Expense)
2)	PBO	15
	Gain (comprehensive income)		15
	(Being Record Gain of 2018)
3)	Loss	5
	Plan Assets ($46-$41)		5
	(Being record loss on Plan assets)
4)	Plan assets	82
	Cash		82
	(Being Record Cash Contribution)
5)	Projected Benefit Obligation	41
	Plan Assets		41

4) Balance as on Dec. 31 :-

PBO Balance on Dec. 31 = $669 Millions

Plan Assets Balance on Dec.31 = $732 Millions

Calculation Net Gain - AOCI :-

Particulars	Amount ($ millions)
Net Gain on Jan. 1	104
Add :- Gain (Comprehensive Income)	15
Less : Loss on plan Assets	(5)
Less : Amortized (Current Year)	(4)
Net Gain on Dec. 31	110

Calculation Prior Service Cost - AOCI :-

Particulars	Amount ($ Millions)
Prior Service Cost on January 1	40
Less : Amortized	(8)
Prior Service cost on Dec. 31	32

5) Pension Assets Reported :-

Pension Assets = Plan assets Balance on Dec. 31 - PBO Balance on Dec. 31

= $732 - $669

= $63 millions