Electronic Distribution has a defined benefit pension plan. Characteristics of t

Question

Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2018 are as follows (s millions) PBO balance, January 1 Plan assets balance, January 1 Service cost Interest cost Gain from change in actuarial assumption Benefits paid Actual return on plan assets Contributions 2018 490 400 80 50 28 34 70 The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2018. but at the end of 2018, the company amended the pension formula creating a prior service cost of $14 million. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) Required 1. Calculate the pension expense for 2018 2. Prepare the journal entry to record pension expense, gains or losses, prior service cost, funding, and payment of benefits for 2018 3. What amount will Electronic Distribution report in its 2018 balance sheet as a net pension asset or net pension liability?

Explanation / Answer

(1). Pension expense will be calculated as follow;

Service cost

$80

Interest cost

$50

Expected return on plan assets ($400 * 0.10)

($40)

Amortization of prior service cost

$0

Amortization of net gain (loss) – AOCI

$0

Pension expense ($80 + $50 - $40)

$90

(2) Journal entries;

Accounts Title & Explanation

Debit

Credit

Pension expenses

$90

Return on plan assets

$40

     PBO

$130

Prior service cost-OCI

$14

     PBO

$14

PBO

$28

     Gain-OCI

$28

Loss-OCI ($400 * 0.10) - $34

$6

     Plan assets

$6

Plan assets

$70

     Cash (funding)

$70

PBO

$38

     Plan assets (retiree benefits)

$38

(3).

PBO balance will be calculated as follow;

PBO balance, January 1

$490

Service cost

$80

Interest cost

$50

Gain from change in actuarial assumption

($28)

Prior service cost (new)

$14

Benefits paid

($38)

PBO balance, December 31

$568

Plan assets balance will be calculated as follow;

Plan assets balance, January 1

$400

Actual return on plan assets

$34

Contributions 2018

$70

Benefits paid

($38)

Plan assets balance, December 31

$466

Net pension liability will be calculated as follow;

PBO balance, December 31

$568

Plan assets balance, December 31

$466

Net pension liability

$102

Service cost

$80

Interest cost

$50

Expected return on plan assets ($400 * 0.10)

($40)

Amortization of prior service cost

$0

Amortization of net gain (loss) – AOCI

$0

Pension expense ($80 + $50 - $40)

$90

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