Question

Pension data for Barry Financial Services Inc. include the following:

	($ in 000s)
Discount rate, 7%
Expected return on plan assets, 9%
Actual return on plan assets, 8%
Service cost, 2018	$	330
January 1, 2018:
Projected benefit obligation		2,400
Accumulated benefit obligation		2,100
Plan assets (fair value)		2,500
Prior service cost–AOCI (2018 amortization, $35)		335
Net gain–AOCI (2018 amortization, $6)		350
There were no changes in actuarial assumptions.
December 31, 2018:
Cash contributions to pension fund, December 31, 2018		265
Benefit payments to retirees, December 31, 2018		290

Required:
1. Determine pension expense for 2018.
2. Prepare the journal entries to record pension expense, gains and losses (if any), funding, and retiree benefits for 2018.

service cost	330 correct
interest cost	168 correct
expected return on assets	(225) correct
amortization of prior service cost	?
amortization of net gain	?
pension expense	?

pension expense (journal entries)
plan assets
amortization of net gain-OCI
amortization of prior service cost-OCI
PBO
Loss-OCI
Plan assets
plan assets
cash
PBO
plan assets

Answer 1

Service Cost $300

add : Interest on Projected Benefit Obligation (2400*0.07) $168

add : Actual return on Plan assets (2500-265+290)*0.08 $202

add : Amortization of prior period cost $35

add : Gain or Loss $350

Net Periodic Pension Payments $1055

Here is a summary of the relevant costs associated with a defined benefit pension plan, which sum to the net periodic pension cost that is recognized in each accounting period:

Cost	Explanation
+ Service cost	This is the actuarial present value of benefits related to services rendered during the current reporting period. The cost includes an estimate of the future compensation levels of employees from which benefit payments will be derived.
+ Interest cost	This is the interest on the projected benefit obligation. It is a financial item, rather than a cost related to employee compensation.
+ Actual return on plan assets	This is the difference between the fair values of beginning and ending plan assets, adjusted for contributions and benefit payments. It is a financial item, rather than a cost related to employee compensation.
+ Amortization of prior service costs	When an employer issues a plan amendment, it may contain increases in benefits that are based on services rendered by employees in prior periods. If so, the cost of these additional benefits are amortized over the future periods in which those employees active on the amendment date are expected to receive benefits.
+ Gain or loss	This is the gain or loss resulting from a change in the value of a projected benefit obligation from changes in assumptions, or changes in the value of plan assets.
= Net periodic pension cost

Jounal Entry to record pension expense :

Pension Expense A/c Dr 1055

Expected return on plan assets Dr 225

Amotization of Net Gain -OCI Dr 6

To Amortization of prior Period Cost 35

To PBO (Balancing figure) 1251