Glibler, Inc., on January 1, 2013, initiated a noncontributory defined benefit p

Question

Glibler, Inc., on January 1, 2013, initiated a noncontributory defined benefit pension plan for its employees. An actuarial consulting firm has indicated that the present value of the projected benefit obligation on January 1, 2013 was $1,760,000, prior service cost on that date was $1,260,000 and the company has set aside assets valued at $500,000 for the plan on the same date. The following information related to the plan is also available:

REQUIRED:

1. Compute the components of pension expense for 2013

2. Compute the Other Comprehensive Income adjustment for 2013.

3. Prepare the pension journal entries required for 2013.

4. Develop the plan status as of December 31, 2013 showing the PBO, Plan Assets, over/under funded status, unamortized prior service cost and the (accrued)/prepaid recorded on the books.

Employers Contribution at year end $500,000 Benefits paid at year end 400,000 Accumulated Benefit Obligation at year end 1,300,000 Service Cost 150,000 Prior Service Cost Amortization Period 10.5 Years Discount Rate 10% Expected Asset Return Rate 10%

Explanation / Answer

1.

Interest Expense

( Discount rate*Beginning PBO) ($1,760,000*10%)

Less Return

Beginning plan assets*Expected asset return rate ($500,000*10%)

Add :Ammortization of PSC

Beginning prior service cost/prior service cost amortization period ($1,260,000/10.5)

2.

Othe comprehensive income adjustments = Actuarial gains and losses on defined benefit pension plan are recognized as other comprehensive income adjustment,

In the given case of Glibler, Inc. there is no acturial gain or loss.

3.

Journal Entry

4.

Service cost $150,000

Interest Expense

( Discount rate*Beginning PBO) ($1,760,000*10%)

$176,000

Less Return

Beginning plan assets*Expected asset return rate ($500,000*10%)

($50,000)

Add :Ammortization of PSC

Beginning prior service cost/prior service cost amortization period ($1,260,000/10.5)

$120,000 Pension Expense $396,000

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