Lacy Construction has a noncontributory, defined benefit pension plan. At Decemb
ID: 2461807 • Letter: L
Question
Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2013, Lacy received the following information: Projected Benefit Obligation ($ in millions) Balance, January 1 $ 540 Service cost 78 Interest cost (5%) 27 Benefits paid (82 ) ________________________________________ ________________________________________ ________________________________________ Balance, December 31 $ 563 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Plan Assets ($ in millions) Balance, January 1 $ 410 Actual return on plan assets 44 Contributions 2013 78 Benefits paid (82 ) ________________________________________ ________________________________________ ________________________________________ Balance, December 31 $ 450 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2013. At the end of 2013, Lacy amended the pension formula creating a prior service cost of $30 million. Assume Lacy Construction prepares its financial statements according to International Accounting Standards. Required: 1. Determine Lacy’s pension expense for 2013 Pension expense = 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 2013
Explanation / Answer
1) Lacy's pension expense
a) Projected benefit obligation
Service cost = 78
+ interest cost = 27
Total = 105
b) Plan assets
Actual return = 44
contribution = 78
Total = 122
c ) Prior service cost = 30
Now total Pension expense is = 105+122+30,= 257 Millions
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