Sapphire Distribution has a defined benefit pension plan. Pension information co

Question

Sapphire Distribution has a defined benefit pension plan. Pension information concerning the fiscal years 2016 and 2017 are presented Information provided by Pension Plan Actuary: a. Projected bencfit obligation at Dcccmber 31,201.5 b. Prior service cost from plan amendment on January 1, 2016 (straight-line amortization for 10-year average (in '000s) $ 1,815 300 remaining service period.) c. Service cost for 2016 560 d. Service cost for 2017 e. Discount rate used by actuary on projected benefit obligation for 2016 & 2017 f. Payments to retirees in 2016 g. Payments to retirees in 2017 h. No changes in actuarial assumptions or estimates i. Net gain - AOCI on January 1, 2016 j. Net gains and losses are amortized for 10 years beginning in 2016 585 10% 480 500 250 Information provided by Pension Fund Trustee: a. Plan asset balance at fair value on December 31,2015 b. 2016 contributions c. 2017 contributions d. Expected long-tcrm rate of rcturn on plan asscts e. 2016 actual return on plan assets f. 2017 actual return on plan assets S 1,755 540 600 12% 250 362 Required 1. Calculate pension expense for the years ended December 31,2016 & 2017 2. Determine the balances in the PBO and Plan Asset accounts at December 31,2016 and 2017 3. Prepare the journal entries for 2016 and 2017 to record pension expense 4. Prepare the journal entries for 2016 and 2017 to record any gains and losses and new prior service cost. 5. Prepare the journal entries for 2016 and 2017 to record the cash contributions to plan assets and benefits paid to retirees

Explanation / Answer

(in 000's) (in 000's) Pension Expense: 2016 2017 1 Service cost (retirement benefits the employer 560 585 has to set side every year) 2 Interest cost 181.5 205.15 (Opening PBO * 10%) -int on unpaid accum balance 3 Return on plan assets: 250 362 4 Amortisation of prior service cost (300/10 years) 30 30 5 Gains & losses-amortization (250/10 years) -25 -25 996.5 1157.15 Balances in PBO & Plan Asset Accounts: (a) Value of Plan Assets: 2016 2017     Opening FV of plan assets 1755 2065      Contributions received 540 600     Benefits paid -          (480)          (500)     Actual return on plan assets 250 362 Closing fair value of plan assets 2065 2527 (b) Projected benefit obligation: Opening PBO 1815 2051.5 Service cost + 560 585 Interest cost + 181.5 205.15 (Opening PBO * 10%) Benefits paid -          (480)          (500) Actuarial gain - -25 -25 Closing PBO 2051.5 2316.65 Journal entries: Debit Credit 3 Pension Expense 996.5 Defined benefit pension liability 996.5 (To record pension expense for the 2016) Pension Expense 1157.15 Defined benefit pension liability 1157.15 (To record pension expense for the 2017) 2 Defined benefit pension liability 540          Cash 540 (being entry for contribution to pension fund in 2016) Defined benefit pension liability 600          Cash 600 (being entry for contribution to pension fund in 2017) 4 To record Actuarial gain: The actuarial gains are initially recorded in OCI (Other comp income) and amortizing them over period. On Actuarial Gain: Pension assets account 250    Other Comprehensive Income 250 (with the actual actuarial gain for the period 2016)    Other Comprehensive Income 25           Pension expense account 25 (subsequently, the amortised amount of gain is recognised by credit to expense account)

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