Question

Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas-Roberts Industries during 2018:

Prior service cost at Jan. 1, 2018, from plan amendment at the beginning of 2015 (amortization: $4 million per year)	$	20	million
Net loss—AOCI at Jan.1, 2018 (previous losses exceeded previous gains)	$	104	million
Average remaining service life of the active employee group		10	years
Actuary's discount rate		4	%

($ in millions)						Plan
PBO						Assets
Beginning of 2018	$	720			Beginning of 2018		$	520
Service cost		62			Return on plan assets,
					5% (7% expected)			26.0
Interest cost, 4%		28.8
Loss (gain) on PBO		(15	)		Cash contributions			102
Less: Retiree benefits		(36	)		Less: Retiree benefits			(36	)
End of 2018	$	759.8			End of 2018		$	612.0

  
Required:
1-a. Determine Douglas-Roberts' pension expense for 2018.
1.b, 2. to 4. Prepare the appropriate journal entries to record the pension expense, to record any 2018 gains and losses, to record the cash contribution to plan assets and to record retiree benefits.

Answer 1

Answer:

Part 1(a)

Calculation of Pension Expenses for 2018

Service Cost	$62
Interest Cost	$28.80
Less: Expected Return on Plan assets (520*7%)	($36.40)
Amortization of Prior Service Cost	$4
Amortization of Net Loss (Note1)	$3.20
Pension Expenses	$61.60

Note 1

Net Loss – AOCI (previous loss exceeded previous gain)$104

Less: 10% of PBO (10% * 720)($72)

Amount to be amortized$32

Amortization per year$3.2

Part 1(b)

Journal Entry

Pension Expenses $61.60

Plan Assets $36.40

Amortization of Net loss $3.2

Amortization of prior service cost $4

Service Cost $62

Interest Cost $28.8

(To record the pension expenses)

Loss –OCI $10.4

Plan Assets $10.4

(To record the loss, Actual return$26 – Expected Return $36.40)

PBO $15

Gain-OCI $15

(To record the gain)

Plan Assets $102

Cash $102

(To record the cash contribution to Plan Assets)

PBO $36

Plan Assets $36

(To record the retiring benefits)