One more thing ! Don't miss the homework reading at the end of the chapter which shows some T-accounts presentation for PBO, Plan assets, Pension benefit liability.......

Hope you will be more comfortable with Pensions :)

Good Luck !

I'm reviewing pension now and need help

The JE for pension expense or (NPPC). If my Pension Expense for the year is 43M, how do i do the JE. the components are

service 41, interest 24, expected returnon plan assets 27, amortizationof psc 4, amortization of net loss 1. The JE would be

dr- Pension Expense   $43M

dr -plan assets 27 

  cr - pbo $65 (incl. service cost 41 and interest cost 24)

  cr- psc oci $4 (assuming I had a loss before)

  cr - amortization or net loss $1

I just want to make sure I understand correctly. when I do the pension expense JE, the accounts that go to PBO are service cost and interest cost, correct or not???

II - are any of you using the CORRIDOR to recognized in pension expense -the amount of G/L from the PBO revisions/underlying assunptions of pension liability and/or return on plan assets different than expected.

Thanks a lot!

wannabe, i would do the JE in the following way :-

Components of Pension Expense on Income Statement:-
Service Cost	41
Interest Cost	24
Expected Return on Plan assets	-27
Current Period	38
Amortization of prior service cost	4
Amortization of net loss	1
Prior period - amortization	5
Pension Expense - NPPC	43
Journal Entries :-
To record current period - service cost, interest cost and expected return on plan assets - net of tax
DR Net Periodic Pension Cost	38
DR Deferred Tax Asset	-
CR    Pension Benefit Liability		38
CR    Deferred Tax Benefit - IS		-
To record NPPC for amortization of prior service cost
DR Net Periodic Pension Cost	4
DR Deferred Tax Benefit - OCI	-
CR    Other Comprehensive Income		4
CR   Deferred Tax Benefit - IS		-
To record NPPC for amortization of net loss
DR Net Periodic Pension Cost	1
DR Deferred Tax Benefit - OCI	-
CR    Other Comprehensive Income		1
CR   Deferred Tax Benefit - IS		-
Notes :-
1. Prior service cost and net loss had been recorded in OCI and corresponding entry to Pension benefit liability.
We reverse current year's amortization from OCI and transfer it to NPPC - IS
2. Pension benefit liability can be current or non-current depending upon the funded status of plan assets and benefits to be paid next year. 3. There is no info about the taxes. In case, there is some info, record the deferred tax asset/benefit accordingly. wannabe, in calculating the ending balance of PBO, we do include the current year's service cost, interest cost. Since there is no info about the actual return on plan assets, FV of the plan assets, I would assume actual return = expected return. In case, there is some additional info for the question you posted, do let me know !

Thanks a lot Divya! I understand the journal entries much better now.

I am just trying to explain the journal entry given by wannabe-

The entry you have given looks perfectly right to me. Only thing, in Becker we used Pension benefit liability a/c(which is the fund balance arrived at by netting off FV of assets and PBO) instead of using PBO and FV of assets seperately.

The same as per Becker would be written as:

DR. Pension expense (41+24-27+5)    43

          CR. Pension benefit liability(65-27)      38

          CR. OCI (4+1)       ---- ------------     5

Summing up and to answer the first question, yes-service and interest cost,here $65 goes to PBO and $27 goes to FV of plan assets

or, in other words, service cost +interest-Return=$38 goes to Pension fund balance.

Hope I am not confusing! Please correct me if my explanation is wrong.

Thanks

Sanjana,

Your JE is correct, amount going to PBO is correct.... Reason, current year's service cost and interest cost increases our projected benefit obligation....

In case, actual return = expected return = $27, it would go to FV of plan assets.... Any gain/loss affects the funded status, i.e.,pension benefit liability.

However, I didn't get the statement "or, in other words, service cost +interest-Return=$38 goes to Pension fund balance."

Are you referring to funded status? Thanks!