Lacy Construction has a noncontributory, defined benefit pension plan. At Decemb

Question

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the following information:

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.

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

Explanation / Answer

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

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