Question

The One About Pensions

Pension data for the Gator Company include the following for the current calendar year:

Discount rate, 8%

Expected return on plan assets, 10%

Actual return on plan assets, 9%

Service cost, $200,000

January 1:

PBO	$1,400,000
ABO	1,000,000
Plan assets	1,500,000
Amortization of prior service cost	20,000
Amortization of net gain	4,000
December 31:
Cash contributions to pension fund	$220,000
Benefit payments to retirees	240,000

Required:

1) Determine pension expense for the year.

2) Prepare the journal entries to record pension expense (only the one with pension expense).

3) Determine the amount of the net pension asset or liability that will be reported on the Company’s December 31 balance sheet.

Answer 1

1) Determine the pension expense for the year :
Particulars			Amount($)
Service cost			400000
Add :Interest expense			112000
(8%*1400000)
			512000
Less : Expected return			-150000
(10%*1500000)
			362000
Add: amortization of prior service cost			20000
Less : Amortixation of net gain			-4000
Pension expense			378000
2) Journal entry to record pension expense ;
Date	General journal	Debit	credit
a.	Pension expense	378000
	Net gains - pensions	4000
	To pension service cost		20000
	TO pension assets		362000
	(400000+112000-150000)
	(being pension expense recorded for the year)
3) Determination of net pension asset/ liability :
Particulars			Amount($)
Service cost			400000
Add :Interest expense			112000
(8%*1400000)
			512000
Less : Expected return			-150000
(10%*1500000)
Net pension asset			362000