196) Waddle Company amended its defined benefit pension plan on January 1, 2018, to increase
retirement benefits earned with each service year. The actuary estimated the prior service cost to
be $216,000. Waddle’s 80 present employees are expected to retire at the rate of about 10 each
year at the end of each of the next eight years.
Required:
1. Using the service method, calculate the amount of prior service cost to be amortized to
pension expense in 2018.
2. Using the straight-line method, calculate the amount of prior service cost to be amortized to
pension expense in 2018.
102
197) Burrito Corporation has a defined benefit pension plan. Burrito received the following
information for the current calendar year:
$150,000,000
25,000,000
15,000,000
(12,000,000)
$178,000,000
$90,000,000
11,000,000
23,000,000
(12,000,000)
$112,000,000
The expected long-term return on plan assets is 10%. There were no other relevant data for the
year.
Required:
1) Determine Burrito’s pension expense for the year.
2) Prepare the journal entries to record the pension expense and funding for the year.
1)
Service cost
Interest cost
Expected return
Pension expense
2)
Pension expense
Plan assets
PBO ($25 + 15)
Plan assets
Cash
103
198) Lasagna Corporation has a defined benefit pension plan. Lasagna received the following
information for the current calendar year:
Projected benefit obligation
Balance, January 1
$100,000,000
Service cost
18,000,000
Interest cost
10,000,000
Benefits paid
(8,000,000)
Balance, December 31
$120,000,000
Plan assets
Balance, January 1
$70,000,000
Actual return on plan assets
7,000,000
Contribution
16,000,000
Benefits paid
(8,000,000)
Balance, December 31
$85,000,000
The expected long-term return on plan assets is 10%. There were no other relevant data for the
year.
Required:
1) Determine Lasagna Corporation’s pension expense for the year.
2) Prepare the journal entries to record the pension expense and funding for the year.
($ in millions)
1)
Service cost
Interest cost
Expected return (70 × 10%)
Pension expense
2)
Pension expense
Plan assets
7
PBO ($18 + 10)
Plan assets
Cash
104
199) Pension data for the Ben Franklin Company include the following for the current calendar
year:
Discount rate, 8%
Expected return on plan assets, 10%
Actual return on plan assets, 9%
Service cost, $200,000
January 1:
PBO
$1,400,000
ABO
1,000,000
Plan assets
1,500,000
Amortization of prior service cost
20,000
Amortization of net gain
4,000
December 31:
Cash contributions to pension fund
$220,000
Benefit payments to retirees
240,000
Required:
1) Determine pension expense for the year.
2) Prepare the journal entries to record pension expense and funding for the year.
1)
Service cost
Interest cost (8% × $1,400,000)
Expected return
Amortization of prior service cost
Amortization of net gain
Pension expense
2)
Pension expense
Plan assets
Amortization of net gain-OCI
PBO ($200 + 112)
Amortization of net prior service cost-OCI
Plan assets
Cash
105
200) Pension data for Sam Adams Inc. include the following for the current calendar year:
Discount rate, 8%
Expected return on plan assets, 10%
Actual return on plan assets, 9%
Service cost, $400,000
January 1:
PBO
3,000,000
ABO
2,000,000
Plan assets
3,200,000
Amortization of prior service cost
30,000
Amortization of net gain
7,000
December 31:
Cash contributions to pension
fund
$275,000
Benefit payments to retirees
310,000
Required:
1) Determine pension expense for the year.
2) Prepare the journal entries to record pension expense and funding for the year.
1)
Service cost
Interest cost (8% × $3,000,000)
$3,200,000)
Amortization of prior service cost
30,000
Amortization of net gain
Pension expense
2)
Pension expense
Plan assets
Amortization of net gain-OCI
PBO ($400 + 240)
Amortization of net prior service cost-OCI
Plan assets
Cash
106
201) Carolina Consulting Company has a defined benefit pension plan. The following pension-
related data were available for the current calendar year:
PBO:
Balance, Jan. 1
$240,000
Service cost
41,000
Interest cost (5% discount rate)
12,000
Gain from changes in actuarial assumptions in
2018
(5,000)
Benefits paid to retirees
(20,000)
Balance, Dec. 31
$268,000
Plan assets:
Balance, Jan.1
$250,000
Actual return (expected return was $22,500)
20,000
Contributions
35,000
Benefits paid
(20,000)
Balance, Dec. 31
$285,000
ABO, Dec. 31
$245,000
January 1, 2018, balances:
Prior service cost-AOCI (amortization $4,000/yr.)
4,000
Net gain-AOCI (amortization, if any, over 15
years)
40,000
There were no other relevant data.
Required:
1) Calculate the 2018 pension expense. Show calculations.
2) Prepare the 2018 journal entries to record pension expense and funding.
3) Prepare any journal entries to record any 2018 gains or losses.
107
108
202) Actuary and trustee reports indicate the following changes in the PBO and plan assets of
Sporting Industries during 2018:
Prior service cost at Jan. 1, 2018, from plan amendment at the
beginning of 2015 (amortization: $2 million per year)
$14 million
Net loss-AOCI at Jan.1, 2018 (previous losses exceeded previous
gains)
$40 million
Average remaining service life of the active employee group
10 years
Actuary’s discount rate
7%
($ in millions)
PBO
PLAN
ASSETS
Beginning of 2018
$300
Beginning of 2018
$200
Service cost
40
Return on plan assets,
8% (10% expected)
16
Interest cost, 7%
21
Loss (gain) on PBO
(7)
Cash contributions
45
Less: Retiree
benefits
(19)
Less: Retiree benefits
(19)
End of 2018
$335
End of 2018
$242
Required:
1) Determine Sporting’s pension expense for 2018 and prepare the appropriate journal entries to
record the expense as well as the cash contribution to plan assets.
2) Prepare the appropriate journal entries to record any 2018 gains and losses.
109
110
203) Actuary and trustee reports indicate the following changes in the PBO and plan assets of
Reeves Uniforms during 2018:
Prior service cost at Jan. 1, 2018, from plan amendment at the beginning
of 2016 (amortization: $8 million per year)
$64 million
Net loss-pensions at Jan.1, 2018 (previous losses exceeded previous
gains)
$80 million
Average remaining service life of the active employee group
10 years
Actuary’s discount rate
8%
($ in millions)
PBO
PLAN ASSETS
Beginning of 2018
$600
Beginning of 2018
$400
Service cost
96
Return on plan assets,
7.5% (10% expected)
30
Interest cost, 8%
48
Loss (gain) on PBO
(4)
Cash contributions
90
Less: Retiree
benefits
(40)
Less: Retiree benefits
(40)
End of 2018
$700
End of 2018
$480
Required:
1. Determine Reeves’ pension expense for 2018 and prepare the appropriate journal entries to
record the expense as well as the cash contribution to plan assets.
2. Determine the new gains and/or losses in 2018 and prepare the appropriate journal entry to
record them.
3. Prepare a pension spreadsheet to assist you in determining end of 2018 balances in the PBO,
plan assets, prior service cost, the net loss-AOCI, and the pension liability-AOCI.
113
204) Orpheum Productions has a noncontributory, defined benefit pension plan. On December
31, 2018 (the end of Orpheum’s fiscal year), the following pension-related data were available:
Projected Benefit Obligation
($ in millions)
Balance, January 1, 2018
$240
Service cost
41
Interest cost, discount rate, 5%
12
Gain due to changes in actuarial assumptions in
2018
(5)
Pension benefits paid
(20)
Balance, December 31, 2018
$268
Plan Assets
Balance, January 1, 2018
$250
Actual return on plan assets
20
(Expected return on plan assets, $22.5)
Cash contributions
35
Pension benefits paid
(20)
Balance, December 31, 2018
$285
January 1, 2018, balances:
Prior service cost (amortization $4 per year)
$24
Net gain (any amortization over 15 years)
40
Required:
1) Prepare the 2018 journal entry to record pension expense.
2) Prepare the 2018 journal entry to record the contribution to plan assets.
3) Prepare the journal entries to record any 2018 gains and losses.
114
115
205) On December 31, 2018, the following pension-related data were available for CPS
Industries’ noncontributory, defined benefit pension plan:
Projected Benefit Obligation
($ in millions)
Balance, January 1, 2018
$960
Service cost
164
Interest cost, discount rate, 5%
48
Gain due to changes in actuarial assumptions in 2018
(20)
Pension benefits paid
(80)
Balance, December 31, 2018
$1,072
Plan Assets
Balance, January 1, 2018
$1,000
Actual return on plan assets
80
(Expected return on plan assets, $90)
Cash contributions
140
Pension benefits paid
(80)
Balance, December 31, 2018
$1,140
January 1, 2018, balances:
Prior service cost (amortization $16 per year)
$96
Net gain (any amortization over 15 years)
160
Required:
1) Prepare the 2018 journal entry to record pension expense.
2) How will the statement of comprehensive income be affected by any 2018 gains and losses?
116
117
206) Hall of Fame Co. has a defined benefit pension plan. Two alternative possibilities for
pension-related data for the current calendar year are shown below:
Case 1
Case 2
Net loss (gain), Jan. 1
($230,000)
$210,000
Loss (gain) on plan assets
(6,000)
2,000
Loss (gain) on PBO
12,000
(220,000)
ABO, Jan. 1
(1,500,000)
(1,350,000)
PBO, Jan. 1
(1,700,000)
(1,600,000)
Plan assets, Jan.1
2,000,000
1,450,000
Average remaining service
period
of active employees (years)
12
10
Required:
1) For each independent case, calculate amortization of the net loss or gain that should be
included as a component of pension expense for the current year.
2) Determine the net loss or gain as of December 31 of the current year.
1)
Case 1
Case 2
Net loss or gain
$230,000
Less: 10% corridor*
Excess
Service period
Amortization
$5,000
2)
Case 2
Balance, January 1
($230,000)
$210,000
Loss (gain) on plan assets
2,000
Amortization
Loss (gain) on PBO
(220,000)
Net loss (gain), 12/31
($221,500)
($13,000)
207) Top Foods has an underfunded pension plan. The pension expense is $58 million. This
amount includes a $60 million service cost, a $40 million interest cost, a $45 million reduction
for the expected return on plan assets, and a $3 million amortization of a prior service cost.
Required:
Prepare the appropriate journal entry to record Top’s pension expense.
Pension expense (to balance)
Plan assets
PBO ($60 + 40)
Amortization of prior service cost-OCI
208) Patey Technologies calculated pension expense for its underfunded pension plan as follows:
($ in millions)
Service cost
$672
Interest cost
450
Expected return on the plan assets ($300 actual, less $30 gain)
(270)
Amortization of prior service cost
24
Amortization of net loss
6
Pension expense
$882
Required:
What is the effect of the components of pension expense on Patey’s statement of comprehensive
income?
209) Carpenter Gems began the year with a net pension liability of $84 million (underfunded
pension plan). Pension expense for the year included the following ($ in millions): service cost,
$30; interest cost, $18; expected return on assets, $12; amortization of net loss, $6.
Required:
Prepare the appropriate general journal entry to record Carpenter’s pension expense.
210) Suppan Service began the year with a net pension liability of $56 million (underfunded
pension plan). Pension expense for the year included the following ($ in millions): service cost,
$20; interest cost, $12; expected return on assets, $8; amortization of net gain, $4.
Required:
Prepare the appropriate general journal entry to record Suppan’s pension expense.
211) Wainright Co. began the year with a net pension liability of $112 million (underfunded
pension plan). Pension expense for the year included the following ($ in millions): service cost,
$40; interest cost, $24; expected return on assets, $16; amortization of net loss, $8; amortization
of prior service cost, $12.
Required:
Prepare the appropriate general journal entry to record Wainright’s pension expense.