Question

1. Park Construction has a noncontributory, defined benefit pension plan. At December 31, year 1, Park received the following information:

Defined Benefit Obligation	($ in millions)
Balance, January 1	$375
Service cost	62
Prior service cost	$12
Interest cost (8%)	30
Benefits paid	(40)
Balance, December 31	439
Plan Assets
Balance, January 1	$250
Actual return on plan assets	30
Contribution, year	60
Benefits paid	(40)
Balance, December 31	300

The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, year 1. At the end of year 1, Park amended the pension formula creating a prior service cost of $12 million. Assume Park Construction prepares its financial statements according to International Financial Reporting Standards (IFRS). Assume the actuary’s discount rate is 8%, which is the rate on high-quality corporate bonds.

Required:

1. Determine Park's pension expense for year 1.
2. Prepare all journal entry(s) for year 1.

Answer 1

1)
Particulars	($ in millions)
Service cost	62
Add: Interest cost	30
Less: Expected return on the plan assets	-25
( $250*10%)
Amortization of prior service cost	0
Amortization of net gain or net loss—AOCI	0
Pension expense	67

2)
Event	Particulars	Debit($)	Credit($)
1	Pension expense	67
	Plan assets	25
	Project Benefit Obligation		92
	($62 service cost + $30 interest cost)
	(To record the pension Expense)
2	Plan assets	5
	Gain—Other Comprehensive Income		5
	($30 (-) 10% of $250)
	(To record the gain/loss on plan Assets)
3	Prior service cost—Other Comprehensive Income	12
	Project Benefit Obligation		12
	(To record the prior Service cost)
4	Plan assets	60
	Cash		60
	(To record the funding)
5	Project Benefit Obligation	40
	Plan assets		40
	(To record the payment of Benefits)