3.(18 points) DEF Corporation has a defined benefit plan. On December 31, 2018 (

Question

3.(18 points) DEF Corporation has a defined benefit plan. On December 31, 2018 (the end of DEF's fiscal year), the following pension-related data were available: Projected Benefit Obligation Balance, January 1, 2018 Service cost Interest cost, discount rate, 5% Gain due to changes in actuarial assumptions in 2014 (5) Pension benefits paid Balance, December 31, 2018 (S in millions) S240 41 12 (20) $268 Plan Assets Balance, January 1, 2018 Actual return on plan assets (Expected return on plan assets, $25) Cash contributions Pension benefits paid Balance, December 31, 2018 250 20 35 (20) $285 January 1, 2018, balances: Prior service cost-AOCI (amortization $4 per year) $24 Net gain AOCI (any amortization over 13 years) Required 1. Please show the calculation pension expense; 2. Prepare the 2018 journal entry to record pension expense; 3 Prepare journal entries to record any 2018 gain or loss associated with PBO and plan assets 4. Prepare the 2018 journal entries to record the contribution to plan assets and benefit to retirees; 5. Determine the balances at December 31, 2018, in the PBO, plan assets, the net gain-AOCI and prior service cost - AOCI and show how the balances changed during 2018. (Hint: You might find T-accounts useful) 6. What amount will DEF report in its 2018 balance sheet as a net pension asset or net pension S40 payments liability for the funded status of the plan?

Explanation / Answer

1. Pension expense/ 5. Balances/ 6. Balance sheet amounts:

# Expected return is higher than actual return by 25-20= 5, which will be adjusted to Net gain- AOCI and amortised along with the balance under corridor approach.

Corridor approach gain amortisaiton calculation:

Prior service cost is amortised on straight line basis of 4 per year as given.

pension expense= 30.85

Balance sheet amounts:

Net asset of 17, Funded status: Funded

2. Journal Entry:

3. Part of above entry

4.

Particulars DBO Plan asset Net Asset /(Liability) Pension expense- Income statement Prior service cost- AOCI Net gain- AOCI Balance, Jan1, 2018 240 250 10 24 40 Annual service cost 41 -41 41 Prior service cost amortisation 0 4 -6 Interest cost 12 -12 12 Gain Amortisation -1.15 -1.15 Gain due to change in actuarial assumptions -5 5 5 Expected retun# -25 -5 Actual return 20 20 Plan amendment 0 Benefits paid -20 -20 0 Annual funding 35 35 2018 Balances 268 285 17 30.85 18 38.85

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