Problem 1712 Determine pension expense journal entries two y

Problem 17-12 Determine pension expense; journal entries, two years [LO17-3,17-4, 17-5,17-6,17-7,17-8] The Kollar Company has a defined benefit pension plan. Pension information concerning the fiscal years 2016 and 2017 are presented below ($ in millions) Information Provided by Pension Plan Actuary: a. Projected benefit obligation as of December 31, 2015 $4,250 b. Prior service cost from plan amendment on January 2, 2016 $550 (straight-line amortization for 10- year average remaining service period) c. Service cost for 2016 $710 d. Service cost for 2017 $760 e. Discount rate used by actuary on projected benefit obligation for 2016 and 2017-10% f. Payments to retirees in 2016 $570 g. Payments to retirees in 2017- $640 h. No changes in actuarial assumptions or estimates i. Net gain-AOCI on January 1, 2016 $475 j. Net gains and losses are amortized for 10 years in 2016 and 2017 Information Provided by Pension Fund Trustee a. Plan asset balance at fair value on January 1, 2016 $3,000 b. 2016 contributions $730 c. 2017 contributions $780 d. Expected long-term rate of return on plan assets-12% e. 2016 actual return on plan assets- $280 f. 2017 actual return on plan assets $330 Required 1. Calculate pension expense for 2016 and 2017. (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) $ in millions) 2016 2017 Pension expense

Solution

1 Calculate pension expenses for 2016 and 2017 Requirement 1 ($ in millions) 2016 2017 Service cost (given) 710 760 Interest on PBO (2016: 10%×$4800)*; 480 542 2017: 10%× $5420*) Expected return ($360) $              (412.80) 2016: 12%×$3000); 2017: 12%×$3440 Amortization of prior service cost 55 55 ($550÷10 years) Amortization of net gain***                                                                                       (5) None Pension expense $                                                                                 880 $                    944.20 WORKINGS- *PBO Balance 1-1-2016 $4,250 Prior service cost 550 Balance, 1-2-2016 $4,800 Interest 10% 480 Service cost 710 Payments ($570) Balance, 12-31-2016 $5,420 Interest 10% 542 Service cost 760 Payments ($640) Balance, 12-31-2017 $                                                                              6,082 ** Plan Assets Balance, 1-1-2016 $3,000 2016 Contribution 730 2016 Actual return on plan assets 280 Payments ($570) Balance 12-31-2016 3,440 2017 contributions 780 2017 actual return on plan assets 330 Payments ($640) Balance 12-31-2017 $3,910 *** Net Gain - OCI 2016 Net gain -A OCI at 1-1-2016 $475 10% of $4,250 ($4250 is greater than $3000) ($425) excess at the beginning of the year $50 Average remaining service period ÷ 10 years Amount amortized to 2016 pension expense $5 2017 2 Net gain - AOCI at 1-1-2016 $475 Loss in 2016 (actual return $280-expected return $360) ($80) Amortization in 2016 (Calculated above) ($5) Net gain - AOCI at 1-1-2017 $390 10% of $5,420 ($5,420 is greater than $3,440) ($542) No excess at the beginning of the year None No amortization for 2017 2017 PENSION EXPENSE 2 YEAR GENERAL JOURNAL DEBIT CREDIT 2016 PENSION EXPENSE(SEE ABOVE) $                             880 PLAN ASSETS(EXPECTED RETURN ON ASSETS) 360 AMORTIZATION OF NET GAIN-OCI(SEE ABOVE) 5 TO PBO(SERVICE COST+INTEREST COST) $1,190 TO AMORTIZATION OF PRIOR SERVICE COST -OCI(SEE ABOVE) 55 2017 PENSION EXPENSE(SEE ABOVE) $                             944.20 PLAN ASSETS(EXPECTED RETURN ON ASSETS) $412.80 TO PBO(SERVICE COST+INTEREST COST) $        1,302 TO AMORTIZATION OF PRIOR SERVICE COST -OCI(SEE ABOVE) 55 3 JOURNAL ENTRIES YEAR GENERAL JOURNAL DEBIT CREDIT 2016 LOSS-OCI $                             360 TO PLAN ASSETS $           360 PRIOR SERVICE COST -OCI $                             550 TO PBO $           550 2017 LOSS-OCI $                       412.80 TO PLAN ASSETS $     412.80 4 JOURNAL ENTRIES YEAR GENERAL JOURNAL DEBIT CREDIT 2016 PLAN ASSETS $                             730 TO CASH $           730 2017 PLAN ASSETS $                             780 TO CASH $           780 2016 PBO $                             730 TO PLAN ASSETS $           730 2017 PBO $                             780 TO PLAN ASSETS $           780