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Pension Calculations

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Selected information about the pension plan of ABC Co. is as follows:

12/31/07 12/31/08
---------- ----------
Accumulated benefit Oligation $4,700,000 - $4,930,000
Projected benefit oligation 4,800,000 - 5,020,000
Accumlated OCI (PSC) 1,800,000 - 1,600,000
Fair value of plan assets 4,650,000 - 4,800,000
Pension expense 1,000,000 - 1,620,000
Contribution 985,000 - 1,350,000
Discount rate (for year) 9% 8%

Instructions:

a) What is the corridor for 2008?
b) Calculate the pension asset/liability at December 31,2008
c) prepare entries for 2008 to record the pension expense and contribution.

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Solution Preview

a. The corridor is the larger of 10% of beginning balance of projected benefit obligation or 10% of market value of plan assets (this can be taken as the fair value of plan assets). The beginning balance is the ending balance of 2007.
10% of projected benefit obligation = ...

Solution Summary

The solution explains how to determine the corridor, pension asset/liability and pass the related journal entries

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Pension Accounting problem: computing pension and preparing a journal entry

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Presented below is information related to major Department stores, Inc. pension plan for 2008

Accumulated benefit obligation (at year -end) $600,000
Service cost 520,000
Funding contribution for 2008 500,000
Settlement rate used in actuarial computation 10%
Expected return on plant assets 9%
Amortization of PSC (due to benefit increase) 100,000
Amortization of net gains 48,000
Projected benefit obligation (at beginning of period) 480,000
Market-related (and fair) value of plan assets (at the beginning of period)$360,000

Instructions

a) Compute the amount of pension expense to be reported for 2008 (show computations)

b) Prepare the journal entry to record pension expense and the employer's contribution for 2008. Assume no new actuarial gains/losses were experienced and that actual returns on assets equaled expected return.

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