13 The Kollar Company has a defined benefit pension plan. Pension information co
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Question
13 The Kollar Company has a defined benefit pension plan. Pension information concerning the fiscal years 2018 and 2019 are presented below ($ in millions): Information Provided by Pension Plan Actuary: a. Projected benefit obligation as of December 31, 2017- $3,050 10 points Skipped b. Prior service cost from plan amendment on January 2, 2018 $550 (straight-line amortization for 10-year average remaining service period). C. Service cost for 2018-$630 d. Service cost for 2019 $680. e. Discount rate used by actuary on projected benefit obligation for 2018 and 2019-10%. f Payments to retirees in 2018 $490 g. Payments to retirees in 2019 $560. h. No changes in actuarial assumptions or estimates i. Net gain-AOCI on January 1, 2018 $365 j. Net gains and losses are amortized for 10 years in 2018 and 2019 eBook Print References Information Provided by Pension Fund Trustee a. Plan asset balance at fair value on January 1, 2018 $2,200. b. 2018 contributions $650 c. 2019 contributions $700 12%. Expected long-term rate of return on plan assets e. 2018 actual return on plan assets $200 f. 2019 actual return on plan assets $250 Required: 1. Calculate pension expense for 2018 and 2019. 2. Prepare the journal entries for 2018 and 2019 to record pension expense 3. Prepare the journal entries for 2018 and 2019 to record any gains and losses and new prior service cost. 4. Prepare the journal entries for 2018 and 2019 to record the cash contribution to plan assets and benefit payments to retireesExplanation / Answer
REQUIRED 1
Pension expense = Interest cost + Service cost – Expected return on plan assets + Amortization of prior service costs - amortization of actuarial gains + amortization of actuarial losses
Pension expense 2018 (in millions): $689.5 (which has been derived as follows):
Interest cost: 3050*10% =$305
(+)Service cost: $630
(-)Expected return on plan assets: $2200*12%= $264
(+) Amortization of prior service costs: $550/10= $55
(-) Amortization of actuarial gains: $365/10= $36.5
Pension expense 2019 (in millions): $729.5 (which has been derived as follows):
Interest cost: PBO at the beginning of 2019*10% = 3458.5*10% = $345.9 which has been derived as follows:
PBO in beginning of 2018 = $3050
(+)Service cost in 2018: $630
(+)Interest cost in 2018: $305
(-) Amortization of actuarial gains in 2018: $36.5
(-) Retiree benefits paid in 2018: $490
(+) Service cost: $ 680
(-)Expected return on plan assets: $2624*12%= $314.9
Plan assets at beginning of 2018: $2200
(+) return on plan assets in 2018: $264 (2200*12%)
(+) cash contributions in 2018: $650
(-) retiree benefits paid in 2018: $490
(+) Amortization of prior service costs: $550/10= $55
(-) Amortization of actuarial gains: $365/10= $36.5
Particulars
2018 (in $ millions)
2019 (in $ millions)
Pension Expense
689.5
729.5
REQUIRED 2
Journal Worksheet
Date
Particulars
Debit ($ millions)
Credit ($ millions)
31st December 2018
Pension expense Dr
689.5
To, Defined Benefit Pension Liability
689.5
31st December 2019
Pension expense Dr
729.5
To, Defined Benefit Pension Liability
729.5
REQUIRED 3
Particulars
2018 ($ million)
2019 ($ million)
Actual return on plan assets
200
250
Expected return on plan assets
264
314.9
Loss = expected return- actual return
64
64.9
There is no new past service cost since there is no change in projected benefit obligation
Journal Worksheet for loss on plan asset (as computed above)
Date
Particulars
Debit ($ millions)
Credit ($ millions)
31st December 2018
Loss OCI Dr
64
To, Plan assets
64
31st December 2019
Loss OCI Dr
64.9
To, Plan assets
64.9
REQUIRED 4
Journal Worksheet to record cash contribution to plan assets
Date
Particulars
Debit ($ millions)
Credit ($ millions)
1st January 2018
PIan assets Dr
650
To, Cash
650
31st January 2019
PIan assets Dr
700
To, Cash
700
Journal Worksheet to record benefit payment to employees
Date
Particulars
Debit ($ millions)
Credit ($ millions)
31st December 2018
Defined Benefit Pension Liabilty Dr
490
To, Cash
490
31st December 2018
Defined Benefit Pension Liabilty Dr
490
To, Cash
490
Particulars
2018 (in $ millions)
2019 (in $ millions)
Pension Expense
689.5
729.5
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