Question

Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2021 are as follows:

	($ millions)
PBO balance, January 1		$	640
Plan assets balance, January 1			500
Service cost			105
Interest cost			85
Gain from change in actuarial assumption			36
Benefits paid			(68	)
Actual return on plan assets			47
Contributions 2021			95

The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2021, but at the end of 2021, the company amended the pension formula, creating a prior service cost of $20 million. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Required:

1. Calculate the pension expense for 2021.
2. Prepare the journal entries to record (a) pension expense, (b) gains or losses, (c) prior service cost, (d) funding, and (e) payment of benefits for 2021.
3. What amount will Electronic Distribution report in its 2021 balance sheet as a net pension asset or net pension liability?

Answer 1

1) The pension expense for 2021 is calculated as follows:

	$(millions)
Service Cost	105
Interest Cost	85
Expected Return on Plan assets ($500 *10%)	(50)
Amortization of prior service cost	-
Pension expense	$140

2) Journal entries are as follows:

No.	Account and Explanation	Debit($)	Credit($)
(a)	Pension Expenses	140
	Plan Assets ($500 *10%)	50
	Projected Benefit Obligation (PBO) (105+85)		190
	(Recorded the Pension Expenses )
(b) 1)	Projected Benefit Obligation (PBO)	36
	Gain - OCI		36
	(Recorded the gain - OCI)
(b) 2)	Loss - OCI ($500 *10%) - $47	3
	Plan Asset		3
	(Recorded the Loss - OCI)
(c)	Prior service cost - OCI	20
	Projected Benefit Obligation (PBO)		20
	(Recorded the Prior service cost )
(d)	Plan Asset	95
	Cash		95
	(Recorded the funding )
(e)	Projected Benefit Obligation (PBO)	68
	Plan Asset		68
	(Recorded the benefits paid)

3) An amount that Electronic Distribution report will in its 2021 balance sheet as a net pension asset or net pension liability is calculated as follows:

a) Net pension asset :

	($ millions)
Plan Asset Balance, January 1	500
Actual Return in Plan Assets	47
Contributions	(68)
Benefits Paid	95
Plan Asset Balance , December 31	574

b) Net pension liability:

	$
Projected Benefit Obligation (PBO), January 1	640
Service Cost	105
Interest Cost	85
Gain from change in actuarial assumption	(36)
Prior Service Cost	20
Benefit Paid	( 68)
Projected Benefit Obligation (PBO),December 31	746
Plan Asset Balance , December 31	(574)
Net pension Liability	$172