Question

U.S. Metallurgical Inc. reported the following balances in its financial statements and disclosure notes on December 31, 2020.

Plan assets $410,000

Projected benefit obligation 300,000

U.S.M.’s actuary determined that the 2021 service cost is $61,000. Both the expected and actual rate of return on plan assets is 10%. The interest (discount) rate is 6%. U.S.M. contributed $121,000 to the pension fund at the end of 2021, and retirees were paid $45,000 from plan assets. (Enter your answers in thousands (i.e., 10,000 should be entered as 10).)

Required:

What is the pension expense at the end of 2021?

What is the projected benefit obligation at the end of 2021?

What is the plan assets balance at the end of 2021?

What is the net pension asset or net pension liability at the end of 2021?

Prepare journal entries to record the (a) pension expense, (b) funding of plan assets, and (c) retiree benefit payments.

Answer 1

1) Calculation of Pension Expense:

Particulars	Amount
Service cost	61
Interest cost (300*6%)	18
Return on plan assets (410*10%)	(41)
Amortization of Prior Service cost	0
Amortization of net gain	0
Pension expense	38

2) Calculation of PBO balance as on December 31:

Particulars	Amount
PBO balance, Jan 1	300
Service cost	61
Interest cost	18
Less: Benefits paid	(45)
PBO balance, Dec 31	334

3) Calculation of Plan assets:

Particulars	Amount
Plan assets balance, Jan 1	300
Actual return on plan assets	41
Contributions	121
Less: Benefits paid	(45)
Plan assets balance, Dec 31	417

4) Calculation of Net Pension Asset or Net Pension Liability:

Particulars	Amount
Plan Assets (ending)	417
Less: PBO (ending)	334
Net Pension Asset, Dec 31	83

5) Journal Entries:

a) Pension Expense entry:

Date	Particulars	Debit	Credit
	Pesion expense	38,000
	plan asset	41,000
	To Pension benefit obligation		79,000
	(To record the contributions made)

b) Funding Entry:

Date	Particulars	Debit	Credit
	Plan assets	121,000
	Cash		121,000
	(To record the contributions made)

c) Payment Entry

Date	Particulars	Debit	Credit
	Project Benefit Obligation	45,000
	Plan assets		45,000
	(To record the contributions made)