Question

Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas-Roberts Industries during 2018:

Prior service cost at Jan. 1, 2018, from plan amendment at the beginning of 2015 (amortization: $4 million per year)	$	12	million
Net loss—AOCI at Jan.1, 2018 (previous losses exceeded previous gains)	$	98	million
Average remaining service life of the active employee group		10	years
Actuary's discount rate		3	%

($ in millions)						Plan
PBO						Assets
Beginning of 2018	$	660			Beginning of 2018		$	460
Service cost		56			Return on plan assets,
					4% (6% expected)			18.4
Interest cost, 3%		19.8
Loss (gain) on PBO		(12	)		Cash contributions			99
Less: Retiree benefits		(33	)		Less: Retiree benefits			(33	)
End of 2018	$	690.8			End of 2018		$	544.4
Required: 1-a. Determine Douglas-Roberts' pension expense for 2018. 1.b, 2. to 4. Prepare the appropriate journal entries to record the pension expense, to record any 2018 gains and losses, to record the cash contribution to plan assets and to record retiree benefits.

Answer 1

Answer:
1a	The pension expenses would be calculated as follows:
	Service cost	$                 56.00
Add:	Interest cost	$                 19.80
Less:	Expected return on the plan assets	$                -27.60	($18.4*6%/4%)
Add:	Amortization of prior service cost	$                   4.00
Add:	Amortization of net loss	$                   3.20
	Pension expense	$                 55.40
	Note: Amortization of net loss would be calculated as follows:
	Net loss-AOCI at Jan 1 2018	$                 98.00
	Less: 10% of PBO as at Jan 1 2018	$                 66.00	($660*10%)
	Amount to be amortized	$                 32.00
	Number of years	10 years
	Amortization of net loss per year	$                   3.20
1b	The journal entry to record pension expense would be as follows:
	Pension Expense	$                 55.40
	Plan Asset	$                 27.60
	Net Loss-AOCI		$                     3.20
	Prior service cost-AOCI		$                     4.00
	PBO		$                  75.80	(Service cost $56+ Interest cost $19.80)
	(To record pension expense)
2	To record any 2018 gain or loss
	Loss-OCI	$                   9.20		Expected return $27.60- Actual return$ 18.4)
	Plan Asset		$                     9.20
	PBO	$                       12
	Gain-OCI		$                        12
3	Plan Asset	$                       99
	Cash		$                        99
	(To record cash contribution to plan asset)
4	PBO	$                       33
	Plan Asset		$                        33
	(TO record payment to retiree)