Question

The blank company has a defined benefit pension plan. Pension information for the fiscal years of...

The blank company has a defined benefit pension plan. Pension information for the fiscal years of 2024 and 2025 are presented below ($ in millions)

Info from by pension actuary

  1. Projected benefit obligation as of December 31, 2023 = $1,800

  2. Prior service cost from plan amendment on January 2, 2024 = $400 (straight line amortization for a 10 year average remaining service period)

  3. Service cost for 2024 = $520

  4. Service cost for 2025 = $570

  5. Discount rate used by actuary on PBO for both years = 10%

  6. Payment to retirees in 2024 = $380

  7. Payment to retirees in 2025 = $450

  8. No actual changes in actuarial assumptions or estimates

  9. Net gain - AOCI on January 1, 2024 = $230

  10. Net gains or losses are amortized for 10 years in 2024 and 2025

Info from by pension trustee

  1. Plan asset balance at fair value on january 1, 2024 = $1,600

  2. 2024 contributions = $540

  3. 2025 contributions = $590

  4. Expected long-term rate of return on plan assets = 12%

  5. 2024 actual return on plan assets = $180

  6. 2025 actual return on plan assets = $210

Required

  1. Calculate pension expense for 2024 and 2025

  2. Prepare the journal entries for 2024 and 2025 to record pension expense

  3. Prepare the journal entries for 2024 and 2025 to record any gains and losses and new prior service cost

  4. Prepare the journal entries for 2024 and 2025 to record to record (a) the cash contribution to plan assets and (b) the benefit payment to retirees

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Homework Answers

Answer #1

Calculate pension expense for 2024 and 2025

Solution:-   

Sr.No. Particulars 2024 2025
1 Service cost 520 570
2

Interest Cost for 2024-(380*10%) ,

for 2025- (450*10%)

 38 45
3

Expected return on Plan Assets

for 2024(180*12%)

for 2025 (210*12%)

 (21.6) (25.2)
4 Amortized Gain/Loss 0 0
5 Amortized Prior Service cost 400 0
Pension Expense 936.40 589.80

Coridor Amortization Calculation:-

1) Market Value of Plan Assets 1600

2) PBO 380

10% of the value whichever is higher from above = 1600*10% = 160

3)AOCI Gain/Loss 230

Average remaining service period :10 years

230-160 = 70

Therefore 70/10= 7

  AOCI Ledger

Dr    Cr

230

7

Prepare the journal entries for 2024 and 2025 to record pension expense

Particulars Amount

Pension Expenses A/C Dr

To Pension Liability A/C

To AOCI prior services cost A/C

520

120

400

AOCI Prior service cost A/C Dr

To Pension Liability A/c

1800

1800

Pension Expenses A/C Dr

To AOCI A/C

7

7

Pension Expenses for 2024 A/C Dr

To cash A/C

936.40

936.40

Pension Expenses for 2025 A/C Dr

To cash A/C

589.80

589.80
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