Question

Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2018. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. The actual return was also 10% in 2018 and 2019\.\* A consulting firm, engaged as actuary, recommends 6% as the appropriate discount rate. The service cost is $150,000 for 2018 and $200,000 for 2019. Year-end funding is $160,000 for 2018 and $170,000 for 2019. No assumptions or estimates were revised during 2018.

Calculate (a) project benefit obligation, (b) plan asset and (c) pension expenses as both December 31, 2018 and December 31, 2019.

Answer 1

Part A:

Project benefit obligation:

Balance December 31, 2018=$150,000

Balance December 31, 2019=$359,000

Part B:

Plan Assets:

Balance December 31, 2018=$160,000

Balance December 31, 2019=$346,000

Part C:

Pension expenses:

Balance December 31, 2018=$150,000

Balance December 31, 2019=$225,000

Step-by-step explanation:

Part A:

Project benefit obligation:

Balance December 31, 2018:

Balance December 31, 2018= Balance January 1,2018+Service Cost 2018+Interest Cost-Benefits Paid

Balance December 31, 2018=0+$150,000+(6%*0)-0

Balance December 31, 2018=$150,000

Balance December 31, 2019:

Balance December 31, 2019=Balance December 31, 2018+Service Cost 2019+Interest Cost-Benefits Paid

Balance December 31, 2019=$150,000+$200,000+(6%*$150,000)-0

Balance December 31, 2019=$359,000

Part B:

Plan Assets:

Balance December 31, 2018:

Balance December 31, 2018=Balance January 1,2018+Annual return on plan assets+Contributions 2019 - Benefits paid

Balance December 31, 2018=0+(10%*0)+$160,000-0

Balance December 31, 2018=$160,000

Balance December 31, 2019:

Balance December 31, 2019=Balance December 31, 2018:+Annual return on plan assets+Contributions 2019- Benefits paid

Balance December 31, 2019=$160,000+(10%*$160,000)+$170,000-0

Balance December 31, 2019=$346,000

Part C:

Pension expenses:

Balance December 31, 2018:

Balance December 31, 2018=Service Cost 2018+interest Cost+Expected return on plan assets

Balance December 31, 2018=$150,000+(6%*0)+(10%*0)

Balance December 31, 2018=$150,000

Balance December 31, 2019:

Balance December 31, 2019=Service Cost 2019+interest Cost+Expected return on plan assets

Balance December 31, 2019=$200,000+(6%*$150,000)+(10%*160,000)

Balance December 31, 2019=$225,000