Problem 17–15
( )s indicate
credits; debits
otherwise
($ in 000s) PBO
Plan
Assets
Prior
Service
Cost
–AOCI
Net
Loss
–AOCI
Pension
Expense Cash
Net
Pension
(Liability)
/ Asset
Balance,
Jan. 1, 2018 (4100) 4530 840 477 430
Service
cost2(332) 332 (332)
Interest
cost, 7%1(287) 287 (287)
1 7% x $4,100 = $287
2 $4,380 – 4,100 – 287 + 44 + 295 = $332
Problem 17–16
Requirement 1
Calculation of pension expense: ($ in millions)
Service cost (given) $48
Interest cost (given) 24
* Amortization of the net loss:
Net loss—AOCI (previous losses exceeded previous gains) $40
To record expense
($ in millions)
Pension expense (total)……………………………………………………… 57
* Because Prior service cost—AOCI and Net loss—AOCI have debit balances, we amortize them with a
credit. We would amortize a Net gain—AOCI (credit balance) with a debit. After the two amortization
amounts are reported as OCI in this year’s statement of comprehensive income, the respective AOCI
amounts in the balance sheet are reduced.
Companies report the service cost component of pension expense in
the income statement as part of the total compensation costs arising from
services rendered by the employees during the period, separate from the
Problem 17–16 (continued)
To record funding and benefit payment
($ in millions)
Plan assets 45
Requirement 2
To record gains and losses
($ in millions)
Loss—OCI ($20 – 15 loss due to return on assets being less than expected) 5
Requirement 3
( )s indicate credits; debits
otherwise
($ in millions) PBO
Plan
Assets
Prior
Service
Cost
–AOCI
Net
Loss
–AOCI
Pension
Expense Cash
Net
Pension
(Liability)
/ Asset
Bal., Jan. 1, 2018 (300) 200 32 40 (100)
Service cost (48) 48 (48)
Interest cost, 8% (24) 24 (24)
Expected return on assets 20 (20) 20
Problem 17–16 (continued)
Requirement 4
Calculation of pension expense: ($ in millions)
Service cost (given) $38
Interest cost (given) 28
* Amortization of the net loss:
Net loss—AOCI (previous losses exceeded previous gains) $42
To record expense
($ in millions)
Pension expense (total)……………………………………………………… 46.7
* Because Prior service cost—AOCI and Net loss—AOCI have debit balances, we amortize them with
credits. We would amortize a Net gain—AOCI (credit balance) with a debit. After the two amortization
amounts are reported as OCI in this year’s statement of comprehensive income, the respective AOCI
amounts in the balance sheet are reduced.
We report the service cost component of pension expense in the
income statement as part of the total compensation costs arising from
services rendered by the employees during the period, separate from the
Problem 17–16 (continued)
To record funding and benefit payments
($ in millions)
Plan assets………………………………………………….. 30.0
Requirement 5
To record gains and losses
($ in millions)
Loss—OCI ($5 loss on change of PBO assumption) 5
Requirement 6
SHAREHOLDERS’ EQUITY: ACCUMULATED
OTHER COMPREHENSIVE INCOME
Net Loss—AOCI
Balance, Jan. 1 42.0
New loss 5.0 12.0 New gain
0.7Amortized in 2019
_________________
Balance, Dec.31 34.3
Prior Service Cost–AOCI
Balance, Jan. 1 28.0
4.0Amortized in 2019
_________________
Balance, Dec.31 24.0
Problem 17–16 (concluded)
Requirement 7
( )s indicate credits; debits
otherwise
($ in millions) PBO
Plan
Assets
Prior
Service
Cost
–AOCI
Net
Loss
–AOCI
Pension
Expense Cash
Net
Pension
(Liability)
/ Asset
Bal., Jan. 1, 2019 (350) 240 28 42 (110)
Service cost (38) 38 (38)
Interest cost, 8% (28) 28 (28)
Problem 17–17
Requirement 1
To Record Pension Expense ($ in millions)
Deferred tax asset (40% x [$41 + 24 – 27])……………………………. 15.2
Pension expense ($41 + 24 – 27 + 4 + 1)……………………………….. 43.0
* Because Prior service cost—AOCI and Net loss—AOCI have debit balances, we amortize them with
credits. We would amortize a Net gain—AOCI (credit balance) with a debit. After the two amortization
amounts are reported as OCI in this year’s statement of comprehensive income, the respective AOCI
amounts in the balance sheet are reduced.
Although for financial reporting purposes the income is reduced now, only the
Remember, we already recorded the deferred tax asset for the net loss and the
prior service cost, and amortizing a portion of those amounts now merely moves
Also, because the annual tax expense should reflect both the current and
We report the service cost component of pension expense in the income
statement as part of the total compensation costs arising from services rendered
by the employees during the period, separate from the other components of
pension expense. This presentation reflects the nature of service cost being
different from that of the other elements of pension cost. The other components
of pension expense are presented in the income statement also, but separate
from the service cost component and outside the subtotal of income from
operations.
Problem 17–17 (continued)
Here is how the new gain and new loss would be recorded if we now include
the tax implications:
To Record New Gains and Losses ($ in millions)
Deferred tax asset (40% x $23)……………… 9.2
Loss—OCI ($23 loss, net of $9.2 tax benefit) 13.8
Global reported a $23 million loss in 2018 from revising an assumption used to
calculate its PBO. That additional cost is recognized now on the statement of
There are no tax effects of the funding and payment of benefits entries.
Problem 17–17 (continued)
To Record Funding and Payment of Benefits($ in millions)
Plan assets………………………………………… 48
Cash (contribution to plan assets)………….. 48
Earlier, when we recorded the pension expense, the book basis (financial
Now, when $48 million cash is paid, that payment is deducted for tax purposes.
The payment for retiree benefits reduces both the obligation to make payments