Question

Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas-Roberts Industries during 2021:

Prior service cost at Jan. 1, 2021, from plan amendment at the beginning of 2018 (amortization: $3 million per year)	$	21	million
Net loss—AOCI at Jan.1, 2021 (previous losses exceeded previous gains)	$	160	million
Average remaining service life of the active employee group		10	years
Actuary's discount rate		7	%

($ in millions)					Plan
PBO					Assets
Beginning of 2021	$	600			Beginning of 2021		$	400
Service cost		54			Return on plan assets,
					8% (10% expected)			32
Interest cost, 7%		42
Loss (gain) on PBO		(11	)		Cash contributions			98
Less: Retiree benefits		(32	)		Less: Retiree benefits			(32	)
End of 2021	$	653			End of 2021		$	498

  
Required:
1-a. Determine Douglas-Roberts's pension expense for 2021.
1-b, 2. to 4. Prepare the appropriate journal entries to record the pension expense, to record any 2021 gains and losses, to record the cash contribution to plan assets and to record retiree benefits.

Answer 1

1a.)

Service Cost	$         54
Interest Cost	$         42
Expected Return on Plan assets ($400 * 10%)	$        (40)
Amortization of Prior Service Costs	$           3
Amortization of Net Loss (See working below)	$         10
Pension Expense	$         69
Computation of net loss amortization:
Net loss—AOCI (previous losses exceeded previous gains)	$       160
10% of $600 PBO (greater than $400 plan assets)	$        (60)
Amount to be Amortized	$       100
	÷ 10 years
Amortization	$         10

1b. to 4)

Account Titles & Explanation	Debit	Credit
Pension expense (Calculated Above)	$ 69
Plan assets(expected return on assets)	$ 40
Net loss—AOCI(current amortization)		$   10
Prior service cost—AOCI(current amortization)		$     3
PBO($54 service cost + $42 interest cost)		$   96
Loss—OCI($32 actual return on assets–$40 expected return)	$    8
Plan Assets		$     8
PBO	$ 11
Gain-OCI (from change in assumption regarding the PBO)		$   11
Plan Assets	$ 98
Cash (contribution)		$   98
PBO	$ 32
Plan Assets (retiree benefits payments)		$   32

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