Question

Wolverine Company maintains a defined benefit pension with First Hartford Trust. Below are the balances reported by First Hartford on January 1, 2017:

Plan Benefit Obligation                  $520,000
Plan Assets $650,000

At the beginning of 2017, First Hartford informed Wolverine that its assumptions for the last five years have been off slightly, and they need to deposit an additional $150,000. Other matters for 2017 are:

The settlement rate is 10%.
The current service cost is $40,000.
Expected earnings are 8%.
Actual earnings are $62,000.
Prior service cost amortization is $25,000.
First Hartford Trust paid retirement benefits of $35,000.
Wolverine funded the plan $80,000.

Prepare the pension expense entry for 2017.

Determine the balance in the Pension Asset/Liability account stating if it is an asset or a liability.

Answer 1

Solution:
Requirement 1
Date	Account title	Debit	Credit
	Pension expense	$                        48,000.00
	Pension Asset	$                        32,000.00		(80,000-48,000)
	Cash		$                      80,000.00
	Calculation of pension expense
	Service cost	$                        40,000.00
Add:	Interest cost	$                        52,000.00	($520,000*10%)
Less:	Return on plan asset	$                      (52,000.00)
Add:	Prior service cost amortization	$                        25,000.00
Less:	Acturial loss to be recognised (Due to assumption of acturial)	$                      (17,000.00)	(150,000-65,000)/5
	Pension expense	$                        48,000.00
	Note:
1	Amortization of acturial loss would be as follows (corridor method)
	10% of Projected benefit obligation	Or 10% of Plan asset	whichever is higher
	$                                                52,000.00	$                        65,000.00	$                      65,000.00
	Acturial loss to be recognised (Due to assumption of acturial)	=(150000-65000)/5
		$                        17,000.00
Requirement 2	Balance of pension asset	$                        32,000.00