Question

The Kollar Company has a defined benefit pension plan. Pension information concerning the fiscal years 2018 and 2019 are presented below ($ in millions): Information Provided by Pension Plan Actuary: Projected benefit obligation as of December 31, 2017 = $2,450. Prior service cost from plan amendment on January 2, 2018 = $750 (straight-line amortization for 10-year average remaining service period). Service cost for 2018 = $590. Service cost for 2019 = $640. Discount rate used by actuary on projected benefit obligation for 2018 and 2019 = 10%. Payments to retirees in 2018 = $450. Payments to retirees in 2019 = $520. No changes in actuarial assumptions or estimates. Net gain—AOCI on January 1, 2018 = $265. Net gains and losses are amortized for 10 years in 2018 and 2019. Information Provided by Pension Fund Trustee: Plan asset balance at fair value on January 1, 2018 = $1,800. 2018 contributions = $610. 2019 contributions = $660. Expected long-term rate of return on plan assets = 12%. 2018 actual return on plan assets = $160. 2019 actual return on plan assets = $210. Required: 1. Calculate pension expense for 2018 and 2019. 2. Prepare the journal entries for 2018 and 2019 to record pension expense. 3. Prepare the journal entries for 2018 and 2019 to record any gains and losses and new prior service cost. 4. Prepare the journal entries for 2018 and 2019 to record the cash contribution to plan assets and benefit payments to retirees.

Answer 1

S.No	Particulars Given in the question	Amount -$	Comments
a.	Projected Benefit Fund Obligation (PBO) as of Dec 31, 2017	2450
b.	Prior service cost from plan amendment on January 2, 2018	750	Straight Line amortization for 10 year average remaining service period)
c.	Service cost for 2018	590
d.	Service cost for 2019	640
e.	Payments to retirees in 2018	450
f.	Payments to retirees in 2019	520
g.	Discount rate used by actuary on projected benefit obligation for 2018 and 2019	10%
h.	No changes in actuarial assumptions or estimates	-
i.	Net Gain - AOCI on January 1, 2018	265
j.	Net gains and losses are amortized for 10 years in 2018 and 2019.	-
	Information Provided by Pension Fund Trustee :
1	Plan asset balance at fair value on January 1, 2018	1800
2	2018 Contributions	610
3	2019 Contributions	660
4	Expected long-term rate of return on plan assets	12%
5	2018 actual return on plan assets	160
6	2019 actual return on plan assets	210

S.No Details 2018 2019 Amount-$ Amount $ 1 Service Cost (Given) 590 640 2 Interest on PBO- See Note 1 320 366 3 Expected Return on Plan Assets (on Jan 1 balance)- See Note 2 (216) (254.40) 4 Amortization of Prior Service Cost - See Note 3 75 75 5 Amortization of Pension - Gains & Losses - See Note 4 (2) 0 Answer Total Pension Expenses (1+2+3+4+5) 767.00 826.60 Note 1 Interest on Projected Benefit Obligation (PBO) S.No Details 2018 2019 Amount-$ Amount $ 1 Projected Benefit Fund Obligation (PBO) as of Jan 1,.2018 2450 3,660 2 Prior service cost from plan amendment on January 2, 2018 750 0 3 Balance PBO as on January 2, 2018 3200 3,660 4 Interest at 10% on (3) above 320 366 5 Service Cost 590 640 6 Payments to Retirees (450) (520) PBO Balance as at December 31 3,660 4,146 Note 2 Plan Asset Balance : Expected Return on Plan Assets S.No Details 2018 2019 Amount-$ Amount $ 1 Plan asset balance at fair value on January 1, 2018 1800 2,120 2 Expected long-term rate of return on plan assets 12% 12% 3 2018 /2019 Contributions 610 660 4 2018/2019 actual return on plan assets 160 210 5 Payments to retirees (450) (520)         Plan Asset Balance :Expected Rate of Return on Plan Assets -Dec 31, 2018(1+3+4+5) 2,120 2,470 Note 3 Amortization of Prior Service Cost S.No Details 2018 2019 Amount-$ Amount $ 1 Prior service cost from plan amendment on January 2, 2018 750 750 2 Straight Line depreciation period 10 10 3 Amortization of Prior Service Cost (1/2) 75 75 Note 4 Amortization of Pension - Gains & Losses S.No Details 2018 2019 Amount-$ Amount $ 1 Net Gain - AOCI on January 1, 2018 265 265 2 PBO as on Jan 1 2450     3 Plan Asset Balance as on Jan 1 1800     4 Higher of (2) and (3) 2450     5 10% of (4) 245 3 Excess/Deficit in at the beginning of the year (1-3) 20    4 Average remaining service period (in years) - Given 10 5 Amortization of Gain (3/5) 2 6 Actual Return: a Actual Return - Given 160 7 Expected Return a. Plan asset balance at fair value on January 1, 2018 1800 b. Expected long-term rate of return on plan assets 12% c. Expected Return (a * b) 216 8 Loss for 2018 ( 6c - 7c) (56) 9 Amortization for 2018 ( See Point 5 of Note 4 above) (2) 10 Net Gain - AOCI - January 1, 2019 ( 1+ 8+9) 207 11 PBO as at Dec 31, 2018 3,660 12 Plan Asset balance as at Dec 31,2018 2,120 13 Higher of 11 & 12 3,660 14 10% of (13) (366) 15 Excess,if any (10 + 14). If Negative = 0 (159) Excess,if any (10 & 14) on Jan 1, 2019 0 Q 2. Journal entries for 2018 and 2019 to record pension expense. 2018 2019 Year Particulars Debit $ Credit $ Debit $ Credit $ Pension Expense 767      826.60 Plan Asset 216      254.40 Amortization of Net Gain 2 0       PBO 910 1006       Amortization of Prior Service Cost 75 75 (Being the entry for Pension expense for 2018 and 2019) Q 3. Journal entries for 2018 and 2019 to record any gains and losses and new prior service cost 2018 Year Particulars Debit $ Credit $ 2018 Loss - OCI (56)     Plan Assets (56) (Being the entry to record the loss . Actual Return :$160 less expected return (12% *Plan Balance $1800)) Prior Service Cost-OCI 750     PBO 750 (Being the entry to record the Prior service cost gains and losses for 2018 ) 2019 Year Particulars Debit $ Credit $ 2019 Loss - OCI (44)       Plan Assets (44) (Being the entry to record the loss:Actual Return: $210 Less Expected Return (12% *Plan Balance: $2120)) Q 4. Prepare the journal entries for 2018 and 2019 to record the cash contribution to plan assets and benefit payments to retirees. 2018 Year Particulars Debit $ Credit $ 2018 Plan Assets 610    Cash 610 (Being the entry to record the cash contribution to Plan Assets for 2018) PBO 450     Plan Assets 450 (Being the entry to record the payment to retirees for 2018) 2019 Year Particulars Debit $ Credit $ 2019 Plan Assets 660       Cash 660 (Being the entry to record the cash contribution to Plan Assets for 2019) PBO 520     Plan Assets 520 (Being the entry to record payment to retirees for 2019)