Question

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the...

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the following information:

Projected Benefit Obligation ($ in millions)
Balance, January 1 $ 520
Service cost 76
Prior service cost 28
Interest cost(5.0%) 26
Benefits paid (77 )
Balance, December 31 $ 573
Plan Assets ($ in millions)
Balance, January 1 $ 390
Actual return on plan assets 43
Contributions 2018 76
Benefits paid (77 )
Balance, December 31 $ 432


The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2018. At the end of 2018, Lacy amended the pension formula creating a prior service cost of $28 million.

Required:
1. Determine Lacy's pension expense for 2018.
2. Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018.

Homework Answers

Answer #1

1. Determine Lacy's pension expense for 2018.

Pension expense = $76 + $26 - $39 = $63 million

2. Prepare the journal entry(s) to record Lacy’s pension expense, gains or losses, prior service cost, funding, and payment of retiree benefits for 2018.

Dr     Pension expense            $63

Dr     Plan assets                     $39

Cr PBO $102

Dr     Plan assets                     $4

Cr Gain—OCI                              $4

(Gain-OCI ($43 actual return on assets – $39 expected return) = $4

Dr     Prior service cost—OCI $28

Cr PBO                                        $28

Dr     Plan assets                     $76

Cr Cash $76

Dr     PBO                               $77

Cr      Plan assets                               $77

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