Question

Pension data for Sam Adams Inc. include the following for the current calendar year:

Discount rate, 6%
Expected return on plan assets, 8%
Actual return on plan assets, 7%
Service cost, $480,000

January 1:
PBO	$	3,080,000
ABO		2,080,000
Plan assets		3,280,000
Amortization of prior service cost		38,000
Amortization of net gain		7,800
December 31:
Cash contributions to pension fund	$	283,000
Benefit payments to retirees		318,000

Required:
1. Determine pension expense for the year.
2. Prepare the journal entries to record pension expense and funding for the year.

Answer 1

• Requirement 1

A	Service Cost	480,000
B	PBO	3,080,000
C	Discount rate	6%
D = B x C	Interest Cost	184,800
E	Plan Assets	3,280,000
F	Expected Return on Plan assets	8%
G = E x F	Expected Return	262,400
H	Amortisation of prior service cost	38,000
I	Amortisation of net gains	7,800
J = A + D - G + H - I	Pension Expense	432,600	Answer

• Requirement 2

Accounts title	Debit	Credit
Pension Expense	432,600
Net Gain - Pensions	7,800
Pension Assets		402,400
Prior Service cost		38,000
Pension Asset	283,000
Cash		283,000