Question

The Kollar Company has a defined benefit pension plan. Pensioninformation concerning the fiscal years 2013 and 2014 are presentedbelow ($ in millions):

Information Provided by PensionPlan Actuary:
a. Projected benefit obligation asof December 31, 2012 = $2,000.
b.
Prior service cost from plan amendment on January 2, 2013 = $600(straight-line amortization for 10-year average remaining serviceperiod).

c. Service cost for 2013 =$560.
d. Service cost for 2014 =$610.
e. Discount rate used by actuary onprojected benefit obligation for 2013 and 2014 = 10%.
f. Payments to retirees in 2013 =$420.
g. Payments to retirees in 2014 =$490.
h. No changes in actuarialassumptions or estimates.
i. Net gainâAOCI on January 1, 2013= $250.
j. Net gains and losses areamortized for 10 years in 2013 and 2014.
Information Provided by PensionFund Trustee:
a. Plan asset balance at fair valueon January 1, 2013 = $1,500.
b. 2013 contributions = $580.
c. 2014 contributions = $630.
d. Expected long-term rate ofreturn on plan assets = 12%.
e. 2013 actual return on planassets = $130.
f. 2014 actual return on planassets = $180.
Required:
1.
Calculate pension expense for 2013 and 2014. (Enter youranswers in millions rounded to 1 decimal place (i.e., 5,500,000should be entered as 5.5).)

2.
Prepare the journal entries for 2013 and 2014 to record pensionexpense. (If no entry is required for a particulartransaction, select "No journal entry required" in the firstaccount field. Enter your answers in millions rounded to 1 decimalplace (i.e., 5,500,000 should be entered as 5.5).)

3.
Prepare the journal entries for 2013 and 2014 to record anygains and losses and new prior service cost.(If no entry isrequired for a particular transaction, select "Nojournal entry required" in the first account field. Enter youranswers in millions rounded to 1 decimal place (i.e., 5,500,000should be entered as 5.5).)

4.
Prepare the journal entries for 2013 and 2014 to record the cashcontribution to plan assets and benefit payments to retirees.(If no entry is required for a particulartransaction, select "No journal entry required" in the firstaccount field. Enter your answers in millions.(i.e., 10,000,000 should be entered as 10).)

Answer 1

Answer and Explanation:

The Kollar Company

1)

Pension Cost

Current Service Cost 5600,00,000.00 6100,00,000.00

Amortisation of Past ServiceCost ( One day Less Amortisation ignored) 600,00,000.00 600,00,000.00

Total Service Cost 6200,00,000.00 6700,00,000.00

Interest Cost 2600,00,000.00 3000,00,000.00

Expected Return on Plan Assets -1800,00,000.00 -2148,00,000.00

Amortisation of AOCI-Return on Plan assets -250,00,000.00 -200,00,000.00

Net Interest Cost 550,00,000.00 652,00,000.00

Net Pension Cost 6750,00,000.00 7352,00,000.00

Details Details 2013 2014

PBO

Opening Balance A 2,000.00 3,000.00

Add: Prior Service Cost B 600.00 0

Add: Interest (A+B*.10) 260.00 300.00

Less: Payment Of Benefit(Assumed to be atthe end of Year) -420.00 -490

Add: Current Service Cost 560.00 610

Closing Balance 3,000.00 3,420.00

Plan Assets

FV of Opeining Assets A 1,500.00 1790

Less Benefit -420.00 -490

Add: Contributions 580.00 630

Add: Actual Return 130.00 180

Closing Balance 1,790.00 2,110.00

Computation Of AOCI

Opening Balance -250 -225

Less: Amortisation 25 25

Closing Balance

Difference Between Actual Return andExpected return (Y1-1500*.12-130) (Y2-1790*.12-180)

Opeing Balance 50

Loss On Actual Return 50 34.8

Less: Amortisation 50/10 -5

Closing Balance 50 79.8

Net -175 -120.2

Computation Of PensionCost

Current Service Cost 560 610

Amortisation of Past ServiceCost ( One day Less Amortisation ignored) 60 60

Total Service Cost 620 670

Interest Cost 260 300

Expected Return

on Plan Assets -180 -214.8

Amortisation of AOCI-

Return on Planassets -25 -20

Net Interest Cost 55 65.2

Net Pension Cost 675 735.2

2)

Date Account Head And Explaination

2013

Dr Current Service Cost 6100,00,000.00

Cr Defined Benefit Obligation 6100,00,000.00

Dr Past Service Cost 600,00,000.00

Cr AOCI-Past Service Cost 600,00,000.00

Dr Interest Expense 3000,00,000.00

Cr Defined Benefit Obligation 3000,00,000.00

Dr AOCI-Expected Return-Actual Return 500,00,000.00

Dr Plan Assets( Actual Return) 1300,00,000.00

Cr Expected Return( Pension Cost) 1800,00,000.00

Dr AOCI-Expected Return-Actual Return 250,00,000.00

Cr Interest Expense 250,00,000.00

2014

Dr Current Service Cost 5600,00,000.00

Cr Defined Benefit Obligation 5600,00,000.00

Dr Past Service Cost 600,00,000.00

Cr AOCI-Past Service Cost 600,00,000.00

Dr Interest Expense 2600,00,000.00

CrDefined Benefit Obligation 2600,00,000.00

Dr AOCI-Expected Return-Actual Return 348,00,000.00

Dr Plan Assets( Actual Return) 1800,00,000.00

Cr Expected Return( Pension Cost) 2148,00,000.00

Dr AOCI-Expected Return-Actual Return 250,00,000.00

Cr Interest Expense 250,00,000.00

Dr Interest Expense -50,00,000.00

Cr AOCI-Expected Return-Actual Return -50,00,000.00

3)

Date

2103

Dr AOCI-Expected Return-Actual Return 348,00,000.00

Dr Plan Assets( Actual Return) 1800,00,000.00

Cr Expected Return( Pension Cost) 2148,00,000.00

Dr AOCI-Past Service Cost 6000,00,000.00

Cr DBO 6000,00,000.00

4) 2103

Dr DBO 4200,00,000.00

Cr Plan Assets 4200,00,000.00

Dr Plan Assets 5800,00,000.00

Cr Cash 5800,00,000.00

2014

Dr DBO 4500,00,000.00

Cr Plan Assets 4500,00,000.00

Dr Plan Assets 6300,00,000.00

Cr Cash 6300,00,000.00