General Electric Corp. sponsors a defined-benefit pension plan for its employees

ID: 2579231 • Letter: G

Question

General Electric Corp. sponsors a defined-benefit pension plan for its employees. On January 1, 2018, the following balances related to this plan. Plan assets (fair value) $2,200,000 2,400,000 Projected benefit obligation Pension asset/liability Prior service cost 200,000 Cr. 300,000 260,000 OCI- Loss As a result of the operation of the plan during 2018, the actuary provided the following additional data at December 31, 2018. Service cost for 2018 Actual return on plan assets in 2018 Amortization of prior service cost Contributions in 2018 Benefits paid retirees in 2018 Settlement rate Expected return rate Average remaining service life of active employees 10 years $280,000 80,000 60,000 460,000 320,000 7% 5% Instructions (a) Compute pension expense for General Electric Corp. for the year 2018 by preparing a pension worksheet. (b) Prepare the journal entry for pension expense.

Explanation / Answer

a. Calculation of Pension Expense

Particulars

Amount

Service Costs for 2018

280,000

Add: Interest Cost (Since interest rate is not given, assumed to be $0)

NIL

Less: Expected Return on Plan Assets

(Plan Assets x Expected Rate) = 2,200,000 x 8%

(176,000)

Amortized gains or losses

2,000

Add: Amortization of prior service cost

60,000

Pension Expense

166,000

NOTE: Amortized gains or losses

Calculation of Corridor Amortization.

Corridor Amortization = 10% of the higher of following:

Plan assets or Projected Benefit Obligation = 2,200,000 or 2,400,000 whichever is Higher

Corridor Amortization = 10% x 2,400,000 = 240,000

OCI – Loss booked = $260,000

Amortized Loss = (260,000 – 240,000) / average remaining life = 20,000 / 10 years = 2,000