Question

Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2021 (the end of Beale's fiscal year), the following pension-related data were available:

Projected Benefit Obligation	($ in millions)
Balance, January 1, 2021		$	460
Service cost			48
Interest cost, discount rate, 5%			23
Gain due to changes in actuarial assumptions in 2021			(14	)
Pension benefits paid			(23	)
Balance, December 31, 2021		$	494

Plan Assets	($ in millions)
Balance, January 1, 2021		$	480
Actual return on plan assets			33
(Expected return on plan assets, $38)
Cash contributions			74
Pension benefits paid			(23	)
Balance, December 31, 2021		$	564

January 1, 2021, balances:	($ in millions)
Pension asset	$	20
Prior service cost—AOCI (amortization $7 per year)		49
Net gain—AOCI (any amortization over 10 years)		88

  
Required:
1. to 3. Prepare the 2021 journal entries to record pension expense, to record any 2021 gains and losses and the contribution to plan assets and benefit payments to retirees.
4. Determine the balances at December 31, 2021, 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 2021 balance sheet as a net pension asset or net pension liability for the funded status of the plan?

Answer 1

1. 2021 journal entries to record pension expense -

PBO = Service cost + Interest cost

= 48+23 = 71

Calculation of Pension expenses - (in millions)

Service cost 48

Interest cost 23

Expected return on the plan assets (38)

(33+5) (actual $33 and loss $5)

Amortization of prior service cost 7

*Amortization of net gain   (4)

--------

Pension expense 36

--------

* Amortization of net gain amount   

Net gain amount $88

10% of $480 plan asset (greater than $460 PBO) $48

10 year amortization /10 = 4

Journal entry - DR CR (in millions)

Pension expense 36

Plan asset 38

Amortization of net gain 4

Amortization of prior service cost 7

PBO ($48+23) 71

2. Journal entry to record gain/loss -

PBO (given) 14

Gain (due to changes in actuarial assumptions) 14

Loss (actual return $33 less expected return $38) 5

Plan Asset 5

3. 2021 Journal entry to record contribution to plan assets and benefit payments to retirees -

Plan assets 74

Cash (Contribution) 74

Plan Assets 23

Cash (Benefit payment) 23

4. Balances in December 2021, in the PBO, Plan asset, Net gain, and prior service cost -

in T accounts-

PBO
			Jan Balance	460
New gain	14		Service cost	48
Benefit paid	23		Interest cost	23
Balance c/f	494
	531			531
Plan Assets
Jan Balance	480
Expected return	38		New loss	5
Cash funding	74		Benefit paid	23
			Balance c/f	564
	592			592
Net Gain - AOCI
			Jan Balance	88
New loss	5		New gain	14
Amortization - 2021	4
Balance c/f	93
	102			102

Prior Service Cost
Jan Balance	49
			Amortization -2021	7
			Balance c/f	42
	49			49

5. Amount Beale will report in the 2021 Balance Sheet as a net pension asset or net pension liability for the funded status of the plan?

Plan Asset-PBO = Net pension

For the 2021 year -

564-494 = $70.

Beale will report a net pension asset of $70 million.