Question

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the following information:

Projected Benefit Obligation	($ in millions)
Balance, January 1		$	360
Service cost			60
Prior service cost			12
Interest cost (7.5%)			27
Benefits paid			(37	)
Balance, December 31		$	422
Plan Assets ($ in millions) Balance, January 1 $ 240 Actual return on plan assets 27 Contributions 2018 60 Benefits paid (37 ) Balance, December 31 $ 290 The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2018. At the end of 2018, Lacy amended the pension formula creating a prior service cost of $12 million. Assume Lacy Construction prepares its financial statements according to International Financial Reporting Standards and that the actuary's discount rate is the rate on high quality corporate bonds. Required: 1. Determine Lacy’s net pension cost for 2018. 2. Prepare the journal entry(s) to record Lacy’s net pension cost, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018.

Answer 1

		PENSION WORKSHEET
						( $ in millions)
		General Journal Entries				Memo Record
	Items	Annual       Pension    Expense	Cash	OCI                        Prior                           Service                  Cost	Pension                              Asset/                Liability	Projected                   Benefit            Obligation	Plan                                      Assets
1	Balance on 1st january(PBO)					360 Cr	360 Dr
2	Balance on 1st january(plan assets)					240 Cr	240 Dr
3	Interest cost	27 Dr				27 Cr
4	Service Cost	60 Dr				60 Cr
5	contribution		60 Cr				60 Dr
6	Actual return	27 Cr					27 Dr
7	Benefits paid					37 Cr	37 Dr
8	Priop service cost	12 Dr		12 Cr
	Balance on 31st Dec	72 Dr	60 Cr	12 Cr