Question

The Warren Group’s pension expense is $67 million. This amount includes a $70 million service cost, a $50 million interest cost, a $55 million reduction for the expected return on plan assets, and a $2 million amortization of a prior service cost.

1. Determine the components of pension expenses that affects the net pension liability.
Service cost
amortization of prior service cost
interest cost
expected return on plan assets
2. Prepare the journal entry to record the pension expense.

Answer 1

1. Service cost

Interest cost

2. Dr Pension expense $67

Dr Plan assets $55

Cr Amortization of prior service cost—OCI $2

Cr PBO $120

Step-by-step explanation:

1. The components of pension expenses that tend to affects the net pension liability are:

SERVICE COST and INTEREST COST reason will be that both SERVICE COST and INTEREST COST help to increase net pension liability while

Amortization of prior service cost on the other hand does not affect PBO or plan assets which simply means that it does not in any way change the net pension liability.

2. Preparation of the journal entry to record the pension expense.

Based on the information given the journal entry to record the pension expense will be :

Dr Pension expense $67

Dr Plan assets $55

Cr Amortization of prior service cost—OCI $2

Cr PBO $120

($70+$50=120)