Problem 17-6 Determine the PBO; plan assets; pension expense; two years [LO17-3,
ID: 2782900 • Letter: P
Question
Problem 17-6 Determine the PBO; plan assets; pension expense; two years [LO17-3, 17-4, 17-6] 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. A consulting firm, engaged as actuary, recommends 5% as the appropriate discount rate. The service cost is $180,000 for 2018 and $270,000 for 2019. Year-end funding is $190,000 for 2018 and $200,000 for 2019. No assumptions or estimates were revised during 2018 Required: Calculate each of the following amounts as of both December 31, 2018, and December 31, 2019: (Enter your answers in thousands (i.e., 200,000 should be entered as 200).) December 31 2018 December 31, 2019 1.Projected benefit obligation 2. Plan assets 3. Pension expense 4. Net pension asset or net pension liabilityExplanation / Answer
Step 1: Compute obligation
2018
2019
Opening obligation
-
180,000
Interest cost @ 5%
-
9,000
Current service cost
180,000
270,000
Closing obligations
180,000
459,000
Step 2 : Compute plan assets
Plan assets
2018
2019
Opening plan assets
-
190,000
Interest income @10%
-
19,000
Funding / contributions
190,000
270,000
Closing plan assets
190,000
479,000
Step 3 : Pension expense
Refer to current service costs to get pension expense
Pension expense
180,000
270,000
Step 4: Net pension asset/liability
Step 1 – Step 2
Net pension asset/liability
10,000
20,000
Net Plan asset
Net Plan asset
2018
2019
Opening obligation
-
180,000
Interest cost @ 5%
-
9,000
Current service cost
180,000
270,000
Closing obligations
180,000
459,000