Question

1) Watt Inc sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances ralate to this plan.

Plan Assets 4,316,000

Projected benefit olbigation 4,300,000

Prior Service Cost (OCI) 840,000

Accumulated OCI- Loss 656,000

As a result of the operations of the plan during 2017, the following additional data are provided by the actuary.

Service cost for 2017 523,000

Settlement & Expected return rate 10%

Actual return on plan assets 510,000

Average service life of all covered employees in years 12

PBO on Dec 31,2017, based on actuarial predictions 4,400,000

Contributions in 2017 652,000

Benefits paid retirees in 2017 705,000

a) Using the data above, compute pension expense for the year 2017 by preparing a pension worksheet

b) Compute the amount of net gains or losses to be amortized for 2017 and 2018

Answer 1

a)

	General Journal Entries						Memo Record
Items	Annual Pension Expense	Cash	OCI - Prior Service Cost	OCI - Gain / Loss	Pension Asset/ Liability		Projected Benefit Obligation	Plan Assets
January 1st 2017			$840,000	$656,000			($4,300,000)	$4,316,000
Service Cost	$523,000						($523,000)
Interest Cost
Actual Return	($510,000)							$510,000
Unexpected Gain	$78,400			($78,400)
Amort of PSC
Contributions		($652,000)						$652,000
Benefit Paid							$705,000	($705,000)
Liability Loss				$282,000			($282,000)
Journal Entry	$91,400	($652,000)	$0	$203,600	$357,000
Accumulated OCI January 1st 2017			$840,000	$656,000
January 1st 2018			$840,000	$859,600	$373,000		($4,400,000)	$4,773,000
							$373,000

Expected Rate Of Return = 10%

Hence,

Expected Return = Plan Assets x Expected Rate Of Return = $4,316,000 x 10 %

Expected Return = $431,600

Now,

Actual Return = $510,000

Hence,

Unexpected Gain = Actual Return - Expected Return = $510,000 - $431,600

Unexpected Gain = $78,400