Actuary and trustee reports indicate the following changes in the PBO and plan a

Question

Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas-Roberts Industries during 2018:

Required:
1-a. Determine Douglas-Roberts' pension expense for 2018.
1.b, 2. to 4. Prepare the appropriate journal entries to record the pension expense, to record any 2018 gains and losses, to record the cash contribution to plan assets and to record retiree benefits..

Required 1-a.

Required 1B and 2 to 4

1. Record annual pension expense.

2. Record the change in plan assets.

3. Record the change in the PBO.

4. Record the cash contribution to plan assets.

5. Record the retiree benefits paid.

Prior service cost at Jan. 1, 2018, from plan amendment at the
beginning of 2015 (amortization: $2 million per year) $ 6 million Net loss—AOCI at Jan.1, 2018 (previous losses exceeded previous gains) $ 94 million Average remaining service life of the active employee group 10 years Actuary's discount rate 3 %

Explanation / Answer

Requirement 1:

Pension expense (calculated below)

53.08

Plan assets (expected return on assets)

25.2

Net loss — AOCI (current amortization)

5.68

Prior service cost — AOCI (current amortization)

2

PBO ($52 service cost + $18.6 interest cost)

70.6

Service cost

$52 m

Interest cost

18.6

Expected return on the plan assets ($16.8 actual, plus $8.4 loss)

(25.2)

Amortization of prior service cost

2

Amortization of net loss

5.68

Pension expense

53.08

Computation of net loss amortization:

Net loss — AOCI (previous losses exceeded previous gains)

$94

6% of $620 PBO (greater than $420 plan assets)

(37.2)

Amount to be amortized

56.8/10 years

Amortization

5.68

Requirement 2-4:

General journal

Debit

Credit

Loss— OCI ($16.8 actual return on assets – $25.2expected return)

8.4

Plan assets

8.4

PBO

10

Gain— OCI (from change in assumption regarding the PBO)

10

Plan assets

97

Cash (contribution)

97

PBO

31

Plan assets (retiree benefit payments

31

Pension expense (calculated below)

53.08

Plan assets (expected return on assets)

25.2

Net loss — AOCI (current amortization)

5.68

Prior service cost — AOCI (current amortization)

2

PBO ($52 service cost + $18.6 interest cost)

70.6

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