Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 20
ID: 2529077 • Letter: S
Question
Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2018. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. A consulting firm, engaged as actuary, recommends 5% as the appropriate discount rate. The service cost is $220,000 for 2018 and $310,000 for 2019. Year-end funding is $230,000 for 2018 and $240,000 for 2019. No assumptions or estimates were revised during 2018.
Required:
Calculate each of the following amounts as of both December 31, 2018, and December 31, 2019: (Enter your answers in thousands (i.e., 200,000 should be entered as 200).)
Explanation / Answer
December 31, 2018
December 31, 2019
Projected benefit obligation
$220
$541
Plan assets
$230
$493
Pension expense
$220
$298
Net pension asset or net pension liability
$10 (Asset)
$48 (Liability)
Workings - Projected benefit obligation
Balance, January 1, 2018 $0
Service cost $220
Interest cost (5% × $0) 0
Benefits paid (0)
Balance, December 31, 2018 $220
Service cost $310
Interest cost (5% × $220) $11
Benefits paid (0)
Balance, December 31, 2019 $541
Workings – Plan Assets
Balance, January 1, 2018 $0
Actual return on plan assets (10% × $0) 0
Contributions, 2018 $230
Benefits paid (0)
Balance, December 31,2018 $230
Actual return on plan assets (10% × $230) $23
Contributions, 2019 $240
Benefits paid (0)
Balance, December 31, 2019 $493
Workings – Pension Expenses
Pension expense – 2018
Service cost $220
Interest cost (5% × $0) 0
Expected return on the plan assets (10% × $0) 0
Pension expense $220
Pension expense – 2019
Service cost $310
Interest cost (5% × $220) $11
Expected return (10% × $230) ($23)
Pension expense $298
Workings – Net pension asset or net pension liability
2018
PBO $220
Plan assets $230
Net pension asset, Dec. 31, 2018 $10
2019
PBO $541
Plan assets $493
Net pension liability,2019 $48
December 31, 2018
December 31, 2019
Projected benefit obligation
$220
$541
Plan assets
$230
$493
Pension expense
$220
$298
Net pension asset or net pension liability
$10 (Asset)
$48 (Liability)
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