Question

4. Mantle Industries. sponsors a defined-benefit pension plan for its employees. As of January 1, 2018, the following balances related to this plan:

	(in thousands)
	Dr (Cr)
Projected benefit obligation	$         45,000
Fair value of plan assets	40,000
Accumulated other comprehensive income (AOCI)
Prior service cost	2,000
Gain/Losses	-
Service cost	5,000
Funding contribution	3,500
Benefits paid to plan participants	6,000
Amortization of prior service cost	200
Actual return on plan assets	2,400
Settlement/discount rate	10.0%
Expected return on plan assets	8.0%

Instructions

1. Determine pension expense for 2018.

2. Prepare the 2018 journal entry to reflect pension activity for Mantle Industries.

3. What is the funded status of the plan at the end of 2018?

Answer 1

a.

Service cost	5000
Projected benefit obligation [45000*10%]	4500
Less: Expected return on plan assets [40,000*8%]	3200
Amortization of Prior service cost	2000
Pension expense	8300

b.

Account Titles	Debit	Credit
Pension expense	6500
Cash		3500
Other comprehensive income		3000

c. Funded status = Fair value of plan assets - Projected benefit obligation = 40,000 -45,000 = (5000), underfunded

Any doubt please comment. If it has helped you, please give a thumbs up.