Question

The Kollar Company has a defined benefit pension plan. Pension information concerning the fiscal years 2021 and 2022 are presented below ($ in millions):

Information Provided by Pension Plan Actuary:

1. Projected benefit obligation as of December 31, 2020 = $3,050.
2. Prior service cost from plan amendment on January 2, 2021 = $550 (straight-line amortization for 10-year average remaining service period).
3. Service cost for 2021 = $630.
4. Service cost for 2022 = $680.
5. Discount rate used by actuary on projected benefit obligation for 2021 and 2022 = 10%.
6. Payments to retirees in 2021 = $490.
7. Payments to retirees in 2022 = $560.
8. No changes in actuarial assumptions or estimates.
9. Net gain—AOCI on January 1, 2021 = $365.
10. Net gains and losses are amortized for 10 years in 2021 and 2022.

Information Provided by Pension Fund Trustee:

1. Plan asset balance at fair value on January 1, 2021 = $2,200.
2. 2021 contributions = $650.
3. 2022 contributions = $700.
4. Expected long-term rate of return on plan assets = 12%.
5. 2021 actual return on plan assets = $200.
6. 2022 actual return on plan assets = $250.

Required:
1. Calculate pension expense for 2021 and 2022.
2. Prepare the journal entries for 2021 and 2022 to record pension expense.
3. Prepare the journal entries for 2021 and 2022 to record any gains and losses and new prior service cost.
4. Prepare the journal entries for 2021 and 2022 to record (a) the cash contribution to plan assets and (b) the benefit payments to retirees.

Answer 1

1. The net pension expense for each year will be:

	2021	2022
Service cost	$630	$680
Interest on liability	$305	$405
	($3,050 * 10%)	($4,045 * 10%)
Expected return on plan assets	-$264	-$307
	($2,200 * 12%)	($2,560 * 12%)
Amotized Prior Service Cost	$55	$55
	($550 / 10 years)
Amortized Net Gain on Jan 1, 2021	-$37	-$36
	($365 / 10 years)
Amortized Net Loss of 2020		$6
$200 (actual return) - $264 (expected return) = $20 (amotrized over 10 years)
Net Pension Expense	$689	$803

The 2021 beginning balance of the PBO and plan assets will be:

	PBO	Plan assets
Beginning balance	$3,050	$2,200
Prior Service Cost	$550
Service cost	$630
Interest cost	$305
Actual return		$200
Contributions		$650
Benefits paid	-$490	-$490
Ending balance	$4,045	$2,560

2 - 4 Journal entries will be as follows:

Account	Debit	Credit
Pension expense	$689
Other comprehensive Income - Gain/ Loss ($37 + $20)	$57
Other comprehensive Income - PSC ($550 - $55)	$495
Cash		$650
Pension Liability		$591
To record the pension expense and contributions for 2021
Pension expense	$799
Other comprehensive Income - Gain/ Loss ($36 - $2 + $307 - $250)	$91
Other comprehensive Income - PSC		$55
Cash		$700
Pension Liability		$135
To record the pension expense and contributions for 2021

Note: No entry is required in the books of the company for the benefits paid to retirees, as it is paid by the pension fund and not the company.