Question

Presented below is information related to the pension plan of Adams Inc. for the year 2018.

1. The service cost related to pension expense is $240,000 using the projected benefits approach.

2. The projected benefit obligation at the beginning of the year is $300,000. The expected return on plan assets is 9% and the settlement rate is 10%. The actual return on plan assets was 8.5%.

3. The accumulated OCI--prior service cost at the beginning of the year is $140,000. The company has a workforce of 200 employees, all of whom are expected to receive benefits under the plan. The total number of service-years is 1,000 and the service-years attributable to 2018 is 250. The company has decided to use the years-of-service method of amortization for these costs.

4. At the beginning of the period, the fair value of pension plan assets is $284,000. The company had an Accumulated OCI (loss) at the beginning of the period of $90,000. Any amortization of unrecognized net loss is recognized on a straight-line basis over the average remaining service-life of the employees.

5. The contribution made to the pension fund in 2018 was $231,000. 6. A change in actuarial assumptions establishes a December 31, 2018 projected benefit obligation of $600,000.

Required: (a) Determine the pension expense to be reported on the income statement for 2018 using a worksheet. (Round all computations to nearest dollar.)

(b) Prepare the journal entry(ies) to record pension expense for 2018

Answer 1

Part A

Service cost	240000
Interest on projected benefit obligation(300000*10%)	30000
Expected return on plan assets(9%*284000)	(25560)
Amortization of prior service cost (140000/1000*200)	28000
Amortization of loss	12000
Pension expense	284440

Amortization of net loss = net loss in beginning period-(higher of 10% of PBO or Plan assets) /number of years = (90000-30000) / (1000/20) = 12000

Part B

Account titles and explanation	debit	credit
Pension expense	284440
OCI (G/L)		12000
OCI - PSC		28000
Pension assets/liability (balancing figure)		13440
Cash		231000