Question

Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2018 are as follows:

	($ millions)
PBO balance, January 1	$	480
Plan assets balance, January 1		300
Service cost		70
Interest cost		40
Loss from change in actuarial assumption	during 2018	10
Benefits paid		(36)
Actual return on plan assets		28
Contributions 2018		60

The expected long-term rate of return on plan assets was 8%. There was no Loss or Gain - AOCI balances on January 1, 2018, but there was a $12 million balance in the Prior Service Cost –AOCI account due to a change in the pension formula in the contract in prior years. Amortization of the prior service cost is $1 million per year.

Required:
1. Calculate the pension expense for 2018.
2. Prepare the journal entry to record pension expense, gains or losses, funding, and payment of benefits for 2018.
3. What amount will Electronic Distribution report in its 2018 balance sheet as a net pension asset or net pension liability?

4. What would be the balance in the Prior Service Cost – AOCI account and the Loss/Gain – AOCI account on December 31, 2018?

Answer 1

Part 1

Service cost	70
Interest cost	40
Expected return on the plan assets($28 actual, plus $10 loss)	(38)
Amortization of prior service cost	0
Amortization of net gain or net loss-AOCI	0
Pension expense	$72

Part 2

No.	General journal	Debit	Credit
1	Pension expense	72
	Plan assets	38
	PBO		110
	Amortization of prior service cost–OCI		0
	Amortization of net loss–OCI		0
2	Loss—OCI	10
	Plan assets		10
3	Plan assets	60
	Cash		60
4	PBO	36
	Plan assets		36

Part 3

Projected Benefit Obligation

Balance, January 1	$480
Service cost	70
Interest cost	40
Benefits paid	(36)
Balance, December 31	$554

Plan Assets

Balance, January 1	$300
Actual return on plan assets	28
Contributions 2018	60
Benefits paid	(36)
Balance, December 31	$352

Net Pension Asset/Liability

PBO	$554
Plan assets	352
Net pension liability, Dec. 31, 2009	$202

Part 4

Prior Service Cost – AOCI = beginning balance – amortization = 12-0 = $12

Loss/Gain – AOCI =beginning balance + new loss = 0+10 = $10