Question

Pension data for Barry Financial Services Inc. include the following: ($ in 000s) Discount rate, 7% Expected return on plan assets, 11% Actual return on plan assets, 10% Service cost, 2016 $ 410 January 1, 2016: Projected benefit obligation 2,800 Accumulated benefit obligation 2,500 Plan assets (fair value) 2,900 Prior service cost–AOCI (2016 amortization, $45) 375 Net gain–AOCI (2016 amortization, $10) 430 There were no changes in actuarial assumptions. December 31, 2016: Cash contributions to pension fund, December 31, 2016, 345 Benefit payments to retirees, December 31, 2016 370 (For all requirements, enter your answers in thousands rounded to 1 decimal place (i.e., 5,500 should be entered as 5.5).) Required: 1. Determine pension expense for 2016. (Amounts to be deducted should be indicated with a minus sign.) 2. Prepare the journal entries to record pension expense, gains and losses (if any), funding, and retiree benefits for 2016.

Answer 1

Answer:

(1) $322

Explanation:

(1) Pension Expense:

= Service Cost + Interest Cost - Expected rate of return + Amortization of prior service cost - Amortization of prior net gain

= $410 +  (2800 × 7%) - (290 actual + 29 loss) + $45 - $10

= $410 + $196 - $319 + $45 - $10

= $322

(2) The journal entries are as follows:

(i) Pension expense A/c                    Dr. $322

Plan assets A/c                                  Dr. $319

Amortization of net gain – OCI A/c  Dr. $10

To Amortization of prior service-cost – OCI         $45

To PBO                                                                     $606

(To record pension expense)

(ii) Loss – OCI  A/c     Dr.   $29

To plan assets                            $29

(To record loss on assets)

Working:

Loss on assets = {2900(11%-10%)}

                         =  2900 × 1%

                         = $29

(iii) Plan assets A/c   Dr.    $345

To cash                                         $345

(To record funding)

(iv) PBO A/c     Dr. $370

To plan assets                $370

(To record Retiree benefits)