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		$	580
Service cost			82
Prior service cost			34
Interest cost(5.0%)			29
Benefits paid			(92	)
Balance, December 31		$	633

Plan Assets	($ in millions)
Balance, January 1		$	450
Actual return on plan assets			50
Contributions 2018			82
Benefits paid			(92	)
Balance, December 31		$	490

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 $34 million.

Required:
1. Determine Lacy's pension expense for 2018.
2. Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018

Determine Lacy's pension expense for 2018.

	Pension expense million

Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).)

1. Record the pension expense.

2. Record the gain or loss on plan assets.

3. Record the prior service cost.

4. Record the funding.

5. Record the payment of benefits.

Answer 1

1):- Lacy's pension expense for 2018.

Pension expense = 82 + 29 - 40 = 71 million

1:- service cost a/c dr. 82

To Projected Benefit Obligation 82

2):- interest cost a/c dr. 29

To plant assets a/c 29

3):- remeasurement gain a/c dr. 40

To plant assets. 40

-->> Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions. (i.e., 10,000,000 should be entered as 10)

s.no. general journal . Debit. Credit

1. Pension exp. dr 66

Plant assests. dr 40

To. PBO. 106

Projected Benefit Obligation = PBO

2. Plant assets dr 5

To gain- OCI 5

3. Prior service cost - OCI. 34

To PBO. 34

4. Plant assets dr. 82

To. Cash. 82

5. PBO. dr. 92

To plant assets . 92

EXPAINATION :--

Particular. $ ( in million )

Service cost. 82

Interest cost. 29

Expected return on plant. (40)

( $ 45 actual , less $ 5 gain)

Pension expenses = $ 71

:- Since the amendment was at the end of the year, there is no amortization of prior service cost in 2018

2:- PBO ($66 service cost + $29 interest cost) = $95

Gain-OCI ($50 actual return on assets – $45 expected return) = $ 5.