Question

Problem 17-16 (Static) Comprehensive—reporting a pension plan; pension spreadsheet; determine changes in balances; two years [LO17-3, 17-4, 17-5, 17-6, 17-7, 17-8]

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Actuary and trustee reports indicate the following changes in the PBO and plan assets of Lakeside Cable during 2021:

Prior service cost at Jan. 1, 2021, from plan amendment at the beginning of 2019 (amortization: $4 million per year)	$	32	million
Net loss-pensions at Jan.1, 2021 (previous losses exceeded previous gains)	$	40	million
Average remaining service life of the active employee group		10	years
Actuary’s discount rate		8	%

($ in millions)

	PBO				Plan Assets
Beginning of 2021	$	300		Beginning of 2021		$	200
Service cost		48
Interest cost, 8%		24		Return on plan assets, 7.5% (10% expected)			15
Loss (gain) on PBO		(2	)	Cash contributions			45
Less: Retiree benefits		(20	)	Less: Retiree benefits			(20	)
End of 2021	$	350		End of 2021		$	240

Assume the following actuary and trustee reports indicating changes in the PBO and plan assets of Lakeside Cable during 2022:

($ in millions)

	PBO				Plan Assets
Beginning of 2022	$	350		Beginning of 2022		$	240
Service cost		38
Interest cost at 8%		28		Return on plan assets, 15% (10% expected)			36
Loss (gain) on PBO		5		Cash contributions			30
Less: Retiree benefits		(16	)	Less: Retiree benefits			(16	)
End of 2022	$	405		End of 2022		$	290

Problem 17-16 (Static) Part 3

3. Prepare a pension spreadsheet to assist you in determining end of 2021 balances in the PBO, plan assets, prior service cost—AOCI, the net loss—AOCI, and the pension liability. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Enter credit amounts with a minus sign and debit amounts with a positive sign.)

4-a. Determine Lakeside’s pension expense for 2022.
4-b. Prepare the appropriate journal entries to record the expense, the cash funding of plan assets, and payment of benefits to retirees.

Answer 1

Requirement 3

Requirement 4

Calculation of pension expense: ($ in millions)

Service cost (given) $38

Interest cost (given) 28

Expected return on the plan assets ($36 actual, less $12 gain) (24)

Amortization of prior service cost (given) 4

Amortization of the net loss * 0.7

Pension expense $46.7

* Amortization of the net loss:

Net loss—AOCI (previous losses exceeded previous gains) $42
10% of $350 ($350 is greater than $240): the “corridor”    (35)
Excess at the beginning of the year $ 7

Average remaining service period ¸ 10 years
Amount amortized to 2019 pension expense   $ 0.7

To record expense

($ in millions)

Pension expense (total).............................................................................. 46.7
Plan assets (expected return on plan assets).............................................. 24.0

PBO ($38 service cost + $28 interest cost)........................................... 66.0

Amortization of net loss—OCI (2019 amortization)*.......................... 0.7

Amortization of prior service cost—OCI (2019 amortization)*........... 4.0

* Because Prior service cost—AOCI and Net loss—AOCI have debit balances, we amortize them with credits. We would amortize a Net gain—AOCI (credit balance) with a debit. After the two amortization amounts are reported as OCI in this year’s statement of comprehensive income, the respective AOCI amounts in the balance sheet are reduced.

We report the service cost component of pension expense in the income statement as part of the total compensation costs arising from services rendered by the employees during the period, separate from the other components of pension expense. This presentation reflects the nature of service cost being different from that of the other elements of pension cost. The other components of pension expense are presented in the income statement also, but separate from the service cost component and outside the subtotal of income from operations.

To record funding and benefit payments

($ in millions)

Plan assets........................................................................ 30.0
Cash (contribution to plan assets)............................... 30.0

PBO 16.0
Plan assets (benefit payments).................................... 16.0