Problem 17–10 (concluded)
Requirement 3
($ in millions)
PBO balance, January 1 $480
Service cost 75
Plan assets balance, January 1 $300
Because the plan is underfunded, Electronic
Distribution will report a net pension liability:
Problem 17–11
Requirement 1
($ in millions)
Reported in income statement:
Service cost—2018 $ 75
Reported as OCI:
Remeasurement gain from assumption change—OCI $(22)
Problem 17–11 (continued)
Requirement 2
($ in
millions)
Service cost 87
When Electronic adds its annual cash investment to its plan assets, the
value of those plan assets increases by $60 million:
To Record Funding
Retired employees were paid benefits of $36 million in 2018. Paying those
To Record Payment of Benefits
Problem 17–11 (concluded)
Requirement 3
($ in millions)
DBO balance, January 1 $480
Service cost 75
Plan assets balance, January 1 $300
Because the plan is underfunded, Electronic Distribution will report a net pension
liability:
Problem 17–12
Requirement 1 ($ in millions)
2018 2019
Service cost (given) $520 $570
*PBO **Plan Assets
Balance, 1-1-2018 $1,800 Balance, 1-1-2018 $1,600
Prior service cost 400
Balance, 1-2-2018 $2,200
*** Net Gain—AOCI
2018
Net gain—AOCI at 1-1-2018 $230
Amount amortized to 2018 pension expense $ 5
2019
Net gain—AOCI at 1-1-2018 $230
No amortization for 2019
Problem 17–12 (continued)
Requirement 2
($ in millions)
2018
Pension expense (total)……………………………………………………… 583
2019
Pension expense (total)……………………………………………………… 633.2
The amortization amounts are reported as other comprehensive income in the
statement of comprehensive income. Companies report the service cost
* Because Prior service cost—AOCI has a debit balance, we amortize it with a credit. We 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.
Problem 17–12 (concluded)
Requirement 3
($ in millions)
2018
Loss—OCI ($180 actual return on assets less than $192 expected return) 12
2019
Requirement 4
($ in millions)
2018
2019
2018
2019
Problem 17–13
Projected Benefit Pension
Obligation Plan Assets Expense
Balance at Jan. 1 $ 0 $ 0
Prior service cost 2,000,000 2,000,000
Amortization of prior service cost
($2,000,000 ÷ 10 years) $200,000
Interest cost
Note: The $40,000 gain ($220,000 – 180,000), while not included in pension
expense, is reported as a gain—OCI in the statement of comprehensive
income; it is carried forward as part of accumulated other comprehensive
income in the balance sheet to be combined with future gains and losses,
which will be included in pension expense only if the net gain or net loss
exceeds 10% of the higher of the PBO or plan assets.
* Since the plan was adopted at the beginning of the year, the prior service cost
increased the PBO at that time.
** Since the prior service cost was funded at the beginning of the year, the plan
assets were increased at that time.
Problem 17–14
1. Actual return on plan assets
($ in 000s)
Plan assets
Beginning of 2018 $2,400
2. Loss or gain on plan assets
Expected return $240 (10% x $2,400)
3. Service cost
PBO:
Beginning of 2018 $2,300
Service cost ?
Problem 17–14 (concluded)
4. Pension expense
($ in 000s)
Service cost $310
Interest cost 161 (7% x $2,300)
* 2018 loss on plan assets
Companies report the service cost component of pension expense in the
income statement as part of the total compensation costs arising from services
5. Average remaining service life of active employees
Net gain, Jan. 1 $330
10% of $2,400 240
Note: If we use the Prior service cost–AOCI and its annual amortization to calculate
average service period ($325 beginning balance / $25 amortization, we get 13
years. This points out a fundamental difference between the two types of
