Question

Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas-Roberts Industries during 2021:

Prior service cost at Jan. 1, 2021, from plan amendment at the beginning of 2018 (amortization: $6 million per year)	$	42	million
Net loss—AOCI at Jan.1, 2021 (previous losses exceeded previous gains)	$	130	million
Average remaining service life of the active employee group		10	years
Actuary's discount rate		7	%

($ in millions)					Plan
PBO					Assets
Beginning of 2021	$	700			Beginning of 2021		$	500
Service cost		48			Return on plan assets,
					8% (10% expected)			40
Interest cost, 7%		49
Loss (gain) on PBO		(8	)		Cash contributions			95
Less: Retiree benefits		(29	)		Less: Retiree benefits			(29	)
End of 2021	$	760			End of 2021		$	606

  
Required:
1-a. Determine Douglas-Roberts's pension expense for 2021.
1-b, 2. to 4. Prepare the appropriate journal entries to record the pension expense, to record any 2021 gains and losses, to record the cash contribution to plan assets and to record retiree benefits.

Answer 1

Particulars	Amount (in $ millions)
Service Cost	$ 48
Interest Cost	$ 49
Expected Return on Plan Assets (10% of $ 500)	($ 50)
Amortization of Prior Service Cost	$ 6
Amortization of Net Loss	$ 6
Pension Expense	$ 59 million
Particulars	Amount (in $ millions)
Net loss -AOCI	$ 130
Less: 10% of Beginning PBO                ( 10 % x $ 700)	($ 70)
	$ 60
Remaining Service Life	10 Years
Amortization of Net Loss ( $ 60 / 10 Years)	$ 6

Event	Accounts titles and Explanation	Debit (in $ millions)	Credit (in $ millions)
1	Pension Expense	$ 59
	Plan Assets	$ 50
	Amortization of Net Loss – OCI		$ 6
	Amortization of Prior Service Cost – OCI		$ 6
	Project Benefit Obligation    - Bal. Fig.		$ 97
	(To record the annual pension expense )
2	Loss-OCI ($ 40 (-) 10% x $ 500)	$ 10
	Plan Assets		$ 10
	(To record loss on Plan Assets)
3	Project Benefit Obligation   - PBO	$ 8
	Gain-OCI		$ 8
	(To record the Change in PBO )
4	Plan Assets	$ 95
	Cash		$ 95
	(To record cash contribution to plan assets)
5	PBO	$ 29
	Plan Assets		$ 29
	(To record the retiree benefits paid)