Question

Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2018. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. A consulting firm, engaged as actuary, recommends 5% as the appropriate discount rate. The service cost is $220,000 for 2018 and $310,000 for 2019. Year-end funding is $230,000 for 2018 and $240,000 for 2019. No assumptions or estimates were revised during 2018.

Required:

Calculate each of the following amounts as of both December 31, 2018, and December 31, 2019: (Enter your answers in thousands (i.e., 200,000 should be entered as 200).)

Answer 1

	December 31, 2018	December 31, 2019
Projected benefit obligation	$220	$541
Plan assets	$230	$493
Pension expense	$220	$298
Net pension asset or net pension liability	$10 (Asset)	$48 (Liability)

Workings - Projected benefit obligation

Balance, January 1, 2018 $0

Service cost                                       $220

Interest cost (5% × $0)                      0

Benefits paid                                     (0)

Balance, December 31, 2018 $220

Service cost                                       $310

Interest cost (5% × $220) $11

Benefits paid                                     (0)

Balance, December 31, 2019 $541

Workings – Plan Assets

Balance, January 1, 2018 $0

Actual return on plan assets (10% × $0)              0

Contributions, 2018                                             $230

Benefits paid                                                        (0)

Balance, December 31,2018 $230

Actual return on plan assets (10% × $230) $23

Contributions, 2019 $240

Benefits paid                                                        (0)

Balance, December 31, 2019                                $493

Workings – Pension Expenses

Pension expense – 2018

Service cost                                                           $220

Interest cost (5% × $0)                                         0

Expected return on the plan assets (10% × $0)    0

Pension expense                                                   $220

Pension expense – 2019

Service cost $310

Interest cost (5% × $220) $11

Expected return (10% × $230) ($23)

Pension expense $298

Workings – Net pension asset or net pension liability

2018

PBO                                                            $220

Plan assets                                                  $230

Net pension asset, Dec. 31, 2018               $10

2019

PBO                                                            $541

Plan assets $493

Net pension liability,2019 $48