Question

At the end of 2017, the balances in the accounts related to the defined benefit pension plan of the Mansfield Company were as follows: Projected benefit obligation $1,470,000 Unrecognized prior service cost (remainder to be amortized over 12 years) 108,000 Unrecognized net loss 192,000 Plan assets (at fair value) 1,087,500 Pension liability 382,500 On 1/1/18, Mansfield amended the plan to provide an increased amount of pension benefits; the prior service cost resulting from this amendment was $60,000. At 1/1/18, the average remaining service life of employees expected to receive benefits was 12 years. The following information relates to the year 2018: Service Cost $184,500 Settlement rate 8% Expected rate of return on plan assets 7% Plan contribution (at year-end) 135,000 Benefit payments to retirees (at year-end) 120,000 In 2018, Mansfield’s actual return on plan assets was $80,000. Mansfield follows a policy of recognizing gains/losses on a delayed basis using the "corridor approach". In 2018, there was one change in the estimates and assumptions relating to computation of the projected benefit obligation, resulting in an increase in the PBO of $48,000. Required: a) Prepare Mansfield’s pension worksheet, and prepare the journal entry that Mansfield would make to record the expense calculated. b) Prepare the pension note required for the 12/31/18 financial statements.

Answer 1

Solution  

Pension Worksheet

1. Amortization of Unrecognized Past Service Cost

At starting $108000

During the year $ 60000

Total $168000

No. of years 12 $ 14000

2. Current Service Cost $ 184500

3. Interest Cost (Plan assets * Expected return on plan assets)

Fair Value of Plan Assets as in beginning $1087500

Add: Unrecognized net loss $ 192,000     

Plan Assets $1279500 $89565

(i.e. $1279500 * 7%)

Less: Actual Return on Plan Assets $  80000

Present Value of Defined Obligation during year $ 208065  

Journal Entries

Pension Expense Dr. $ 208065

To Pension Liability $ 194065

To OCI Prior Expense $ 14000