Question

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.

Answer 1

	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