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: Projected Benefit obligation (s in millions) S 480 Balance, January 1 Service cost Prior service cost Interest cost (5.0%) Benefits paid Balance, December 31 72 24 24 (67) S 533 Plan Assets (S in millions) Balance, January 1 Actual return on plan assets Contributions 2018 Benefits paid Balance, December 31 S 350 36 72 (67) 391 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 $24 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

Explanation / Answer

1) ($ in millions) Service Cost $72.00 Interest Cost $24.00 Expected return on the plan assets ($350 x 10%) -$35.00 Amortization of prior service cost $0.00 Amortization of net gain or net loss—AOCI $0.00 Pension expense $61.00 Since the amendment was at the end of the year, there is no amortization of prior service cost in 2018 2) Account Titles and Explanations Debit Credit Pension expense $61.00 Plan assets $35.00 PBO ($72 service cost + $24 interest cost) $96.00 (To Record Pension Expenses) Plan assets $1.00 Gain—OCI ($36 actual return on assets – $35 expected return) $1.00 (To record gains or losses) Prior service cost—OCI $24.00 PBO $24.00 (To record Prior service Cost) Plan assets $72.00 Cash $72.00 (To Record funding contribution) PBO $67.00 Plan assets $67.00 (To Record retiree benefits)

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