Question

In: Accounting

Actuary and trustee reports indicate the following changes in the PBO and plan assets of White...

Actuary and trustee reports indicate the following changes in the PBO and plan assets of White Inc. during 2016:

Prior service cost at January 1, 2016 from plan amendment at the beginning of 2013 [Amortization: $4,000 per year] $68,000
Net Gain - AOCI at January 1, 2016 $40,000
Average remaining service life of the active employee group 15 years
Actuary's discount rate 5%
Gain - from changes in actuarial assumptions $5,000
2016 Pension Expense $33,500
PBO Plan Assets
Beginning of 2016 $240,000 Beginning of 2016 $250,000
Service cost $41,000 Return on plan assets, 8%, [ 9% expected] $20,000
Cash contributions $35,000

Required:

A. Prepare the appropriate journal entries to record the expense and the cash contribution to plan assets.

B. Prepare the appropriate journal entries to record any 2016 gains and losses.

C. Where would you find the pension on White Inc.'s balance sheet at the beginning of 2016? What amount would you look for?

Solutions

Expert Solution

Source of pension expense:

Pension expense Amount
Service cost           41,000
Interest cost           12,000
PSC amortisation              4,000
Return on plan assets          -22,500
OCI Gain amortisation            -1,000
Expense           33,500

A

Journal:

Account Nature Statement Debit Credit
Pension expense Service cost Income statement           41,000                    -  
Pension expense Interest cost Income statement           12,000                    -  
Pension expense PSC amortisation Income statement             4,000                    -  
Pension expense Expected return on plan asset Income statement                    -             22,500
Pension expense OCI gain/loss amortisation Income statement                    -               1,000
AOCI net gain Difference between actual return and expected return Other comprehensive income             2,500                    -  
AOCI net gain OCI gain/loss amortisation Other comprehensive income             1,000                    -  
Pension asset/liability Actual return Balancesheet           20,000
AOCI Prior service cost PSC amortisation Other comprehensive income             4,000
Pension asset/liability Pension expense Balancesheet           53,000
[Pension expense for the year recorded]
Account Debit Credit
Pension asset/liability                         35,000
Cash           35,000
[ Cash contributed to the pension fund]

C

On non current assets section net pension asset can be found. Net amount will be $10,000.

Below is the pension worksheet:

Items Annual pension expense Cash AOCI-PSC OCI Gain Pension asset/liability Projected benefit obligation Plan assets
Amount Dr/cr Amount Dr/cr Amount Dr/cr Amount Dr/cr Amount Dr/cr Amount Dr/cr Amount Dr/cr
Balance Jan 1, 2016            68,000 Dr             40,000 Cr           10,000 Dr               240,000 Cr         250,000 Dr
Service cost           41,000 Dr           41,000 Cr                 41,000 Cr
Interest cost           12,000 Dr           12,000 Cr                 12,000 Cr
PSC amortisation              4,000 Dr              4,000 Cr
Return on plan assets           22,500 Cr                2,500 Dr           20,000 Dr            20,000 Dr
OCI Gain amortisation              1,000 Cr                1,000 Dr
New prior service cost                    -   Dr                   -   Dr Cr
Gain due to change in acturial assumptions                5,000 Cr                   5,000 Dr
Contributions            35,000 Cr           35,000 Dr            35,000 Dr
Benefits paid                          -   Dr                    -   Cr
Jounral for 2016           33,500 Dr            35,000 Cr              4,000 Cr                1,500 Cr             2,000 Dr                 48,000 Cr            55,000 Dr
Opening balance Jan 1, 2016            68,000 Dr             40,000 Cr           10,000 Dr               240,000 Cr         250,000 Dr
Balance Dec 31, 2016            64,000 Dr             41,500 Cr           12,000 Dr               288,000 Cr         305,000 Dr

Gain amortization for the year is:

Corridor amortisation
Ref Particulars Amount
A Opening OCI gain/ loss 40000
Less: 10% of higher of plan assets or PBO
Opening balance:
Plan assets 250000
PBO 240000
B higher of above 250000
C 10% of B 25000
D= A-C Amount subject to amortisation 15000
E Amortisation period 15
F= D/E Amortisation amount 1000

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