Question

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.

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