Question

Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2018. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. The actual return was also 10% in 2018 and 2019.* A consulting firm, engaged as actuary, recommends 6% as the appropriate discount rate. The service cost is $150,000 for 2018 and $240,000 for 2019. Year-end funding is $160,000 for 2018 and $170,000 for 2019. No assumptions or estimates were revised during 2018.

*We assume the estimated return was based on the actual return on similar investments at the inception of the plan and that, since the estimate didn’t change, that also was the actual rate in 2019.

Required:

Calculate each of the following amounts as of both December 31, 2018, and December 31, 2019: (Enter your answers in thousands (i.e., 200,000 should be entered as 200).)

Answer 1

Projected benefit obligation
	in 000s
Balance as on Jan 01, 2018	0
Service cost	150
Add: Interest costs (0*6%)	0
Less: Benefits paid	0
Balance as on December 31, 2018	150
Service cost	240
Add: Interest costs (150*6%)	9
Benefits paid	0
Balance as on December 31, 2019	399

2)

Plan Assets
	in 000s
Balance as on January 01, 2018	0
Actual return on plan assets (0*10%)	0
Add: COntributions made	160
Less: Benefits paid	0
Balance as on December 31, 2018	160
Actual return on plan assets (160*10%	16
Add: COntributions made	170
Less: Benefits paid	0
Balance as on Dec 31, 2019	346

3)

Pension Expense

	in 000s
Service cost	150
Add: Interest cost (0*6%)	0
Less: Expected return on the plan assets (0*10%)	0
Pension Expense 2018	150

.

Service cost	240
Add: Interest cost (150*6%)	9
Less: Expected return on the plan assets (160*10%)	16
Pension expense 2019	233

4)

Net pension asset/liability

	in 000s
Projected benefir obligation	150
Less: Plan assets	160
Net pension assets as on Dec 31, 2018	-10
Projected benefit obligation	399
Less: Plan assets	346
Net pension liability as on Dec 31, 2019	53