Question

Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2021 are as follows:

	($ millions)
PBO balance, January 1		$	600
Plan assets balance, January 1			300
Service cost			85
Interest cost			65
Gain from change in actuarial assumption			28
Benefits paid			(60	)
Actual return on plan assets			13
Contributions 2021			75

The expected long-term rate of return on plan assets was 6%. There were no AOCI balances related to pensions on January 1, 2021, but at the end of 2021, the company amended the pension formula, creating a prior service cost of $16 million. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Required:

1. Calculate the pension expense for 2021.
2. Prepare the journal entries to record (a) pension expense, (b) gains or losses, (c) prior service cost, (d) funding, and (e) payment of benefits for 2021.
3. What amount will Electronic Distribution report in its 2021 balance sheet as a net pension asset or net pension liability?

Answer 1

Answer
1)	Pension expense will be calculated as follow;
	Particulars	Amount (million)
	Service cost	$             85
	Interest cost	$             65
	Expected return on plan assets ($300 * 6%)	$           -18
	Amortization of prior service cost	$             -
	Amortization of net gain (loss) – AOCI	$             -
	Pension expense	$           132
2)	Journal Entries
	Accounts Title & Explanation	Debit (million)	Credit (million)
	Pension expenses	$           132
	Return on plan assets	$             18
	PBO		$           150
	Prior service cost-OCI	$             16
	PBO		$             16
	PBO	$             28
	Gain-OCI		$             28
	Loss-OCI	$               5
	Plan assets		$               5
	Plan assets	$             75
	Cash (funding)		$             75
	PBO	$             60
	Plan assets (retiree benefits)		$             60
3)	PBO balance will be calculated as follow;
	PBO balance, January 1	$           600
	Service cost	$             85
	Interest cost	$             65
	Gain from change in actuarial assumption	$           -28
	Prior service cost (new)	$             16
	Benefits paid	$           -60
	PBO balance, December 31	$           678
	Plan assets balance will be calculated as follow;
	Plan assets balance, January 1	$           300
	Actual return on plan assets	$             13
	Contributions 2018	$             75
	Benefits paid	$           -60
	Plan assets balance, December 31	$           328
	Net pension liability will be calculated as follow;
	PBO balance, December 31	$           678
	Plan assets balance, December 31	$           328
	Net pension liability	$           350
	Please Like