Question

In: Accounting

Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2018. The provisions of the...

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).)

Solutions

Expert Solution

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

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