Question

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?

Answer 1

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