Question

In: Accounting

U.S. Metallurgical Inc. reported the following balances in its financial statements and disclosure notes at December...

U.S. Metallurgical Inc. reported the following balances in its financial statements and disclosure notes at December 31, 2017.

Plan assets $500,000
Projected benefit obligation 420,000


U.S.M.’s actuary determined that 2018 service cost is $70,000. Both the expected and actual rate of return on plan assets are 9%. The interest (discount) rate is 5%. U.S.M. contributed $130,000 to the pension fund at the end of 2018, and retirees were paid $54,000 from plan assets. (Enter you answers in millions (i.e., 10,000,000 should be entered as 10).)

Required:

1 to 4. Determine the following amounts at the end of 2018.
5. Prepare journal entries to record the pension expense, funding of plan assets, and retiree benefit payments.

Solutions

Expert Solution

December 31, 2018

(1) Pension Expense

46000

(2) Projected Benefit Obligations

457000

(3) Plan Assets

621000

(4) Net Pension Asset, Dec 31, 2018

164000

Explanations :-

(i) Pension Exp :-

Service Cost

70000

Interest Cost (420000 * 5%)

21000

Return on Plan Assets (500000 * 9%)

(45000)

Amortisation of Prior service cost

0

Amortisation of net loss or gain

0

Pension Exp

46000

(ii) Projected Benefit Obligation :-

Balance, Jan 1

420000

Service cost

70000

Interest cost

21000

Benefit Paid

(54000)

Balance, Dec 31

457000

(iii) Plan Asset :-

Balance, Jan 1

500000

Actual Return on Plan Asset

45000

Contribution

130000

Benefit Paid

(54000)

Balance, Dec 31

621000

(iv) Net Pension Asset or Net Pension Liability :-

PBO

457000

Plan Assets

621000

Net Pension Asset, Dec. 2018

164000

(5) Journal Entries :-

S.No.

General Journal

Debit

Credit

1

To record the pension expenses :-

Pension Expense

46000

Plan Assets

45000

PBO

91000*

2

To record the plan assets :-

Plan Assets

130000

Cash

130000

3

To record the PBO :-

PBO

54000

Plan Assets

54000

*PBO = (70000 service cost + 21000 int cost) = 91000


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