Question

The Kollar Company has a defined benefit pension plan. Pension information concerning the fiscal years 2018 and 2019 are presented below ($ in millions): Information Provided by Pension Plan Actuary:

Projected benefit obligation as of December 31, 2017 = $2,600.

Prior service cost from plan amendment on January 2, 2018 = $800 (straight-line amortization for 10-year average remaining service period).

Service cost for 2018 = $600.

Service cost for 2019 = $650

Discount rate used by actuary on projected benefit obligation for 2018 and 2019 = 10%.

Payments to retirees in 2018 = $460.

Payments to retirees in 2019 = $530.

No changes in actuarial assumptions or estimates. Net gain—AOCI on January 1, 2018 = $350.

Net gains and losses are amortized for 10 years in 2018 and 2019

Information Provided by Pension Fund Trustee: Plan asset balance at fair value on January 1, 2018 = $1,900.

2018 contributions = $620.

2019 contributions = $670.

Expected long-term rate of return on plan assets = 12%.

2018 actual return on plan assets = $170.

2019 actual return on plan assets = $220.

Required

: 1. Calculate pension expense for 2018 and 2019.

2. Prepare the journal entries for 2018 and 2019 to record pension expense.

3. Prepare the journal entries for 2018 and 2019 to record any gains and losses and new prior service cost.

4. Prepare the journal entries for 2018 and 2019 to record the cash contribution to plan assets and benefit payments to retirees.

Answer 1

Requirement 1:- Calculate pension expense for 2018 and 2019.

Solution:-

Calculation of Pension Expense

W.N. 1:- Calculation of Interest

Calculation of balance Plan Assets

W.N. 2:- Calculation of Expected Return on Plan Assets

Expected Return for 2018 = 12% of Plan Assets on January 1, 2018

Expected Return for 2018 = 12% * 1,900

Expected Return for 2018 = $228

Expected Return for 2019 = 12% of Plan Assets on December 31, 2018

Expected Return for 2019 = 12% * 2,230

Expected Return for 2019 = $267.60

W.N. 3:- Calculation of Net Gain

For 2018

For 2019

Requirement 2:- Prepare the journal entries for 2018 and 2019 to record pension expense.

Solution:-

For 2018

For 2019

Requirement 3:- Prepare the journal entries for 2018 and 2019 to record any gains and losses and new prior service cost.

Gain or Loss Entry for 2018

Gain or Loss Entry for 2019

Requirement 4:- Prepare the journal entries for 2018 and 2019 to record the cash contribution to plan assets and benefit payments to retirees.

Funding Entry for 2018:

Funding Entry for 2019:

Payment entry:

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