Question

Exercise 17-11 (Static) Components of pension expense; journal entries [LO17-6, 17-7]

Pension data for Barry Financial Services Inc. include the following:

	($ in thousands)
Discount rate, 7%
Expected return on plan assets, 10%
Actual return on plan assets, 9%
Service cost, 2021	$	310
January 1, 2021:
Projected benefit obligation		2,300
Accumulated benefit obligation		2,000
Plan assets (fair value)		2,400
Prior service cost—AOCI (2021 amortization, $25)		325
Net gain—AOCI (2021 amortization, $6)		330
There were no changes in actuarial assumptions.
December 31, 2021:
Cash contributions to pension fund, December 31, 2021		245
Benefit payments to retirees, December 31, 2021		270

  
Required:
1. Determine pension expense for 2021.
2. Prepare the journal entries to record (a) pension expense, (b) gains and losses (if any), (c) funding, and (d) retiree benefits for 2021.

Exercise 17-11 (Static) Components of pension expense; journal entries [LO17-6, 17-7]

Pension data for Barry Financial Services Inc. include the following:

	($ in thousands)
Discount rate, 7%
Expected return on plan assets, 10%
Actual return on plan assets, 9%
Service cost, 2021	$	310
January 1, 2021:
Projected benefit obligation		2,300
Accumulated benefit obligation		2,000
Plan assets (fair value)		2,400
Prior service cost—AOCI (2021 amortization, $25)		325
Net gain—AOCI (2021 amortization, $6)		330
There were no changes in actuarial assumptions.
December 31, 2021:
Cash contributions to pension fund, December 31, 2021		245
Benefit payments to retirees, December 31, 2021		270

  
Required:
1. Determine pension expense for 2021.
2. Prepare the journal entries to record (a) pension expense, (b) gains and losses (if any), (c) funding, and (d) retiree benefits for 2021.

Answer 1

Answer:

1)

The pension expense for 2021 is calculated as follows:

Service Cost	310
Interest Cost (2,300*7%)	161
Expected Return on Plan Assets (2,400*10%)	-240
Prior Service Cost	25
Amortization of Net Gain	-6
Pension Expense	$250

2)

The journal entries are as follows:

S.No.	Account Titles	Debit	Credit
1)	Pension Expense	$250
	Plan Assets	$240
	Amortization of Net Gain – OCI	$6
	Amortization of Prior Service Cost – OCI		$25
	PBO (310 + 2,300*7%)		$471
	(To record pension expense)
2)	Loss-OCI (9%*(2,400) – 10%*(2,400))	$24
	Plan Assets		$24
	(To record loss on assets)
3)	Plan Assets	$245
	Cash		$245
	(To record the funding)
4)	PBO	$270
	Plan Assets		$270
	(To record the retiree benefits)