Question

Harrison Forklift's pension expense includes a service cost of $20 million. Harrison began the year with a pension liability of $40 million (underfunded pension plan).
Required:
Prepare the appropriate journal entries to record Harrison's pension expense in each of the following independent situations regarding th other components of pension expense ($in millions):
1. Interest cost, $8; expected return on assets, $14; amortization of net loss, $4.
2. Interest cost, $16; expected return on assets, $12; amortization of net gain, $4.
3. Interest cost, $16; expected return on assets, $12; amortization of net loss, $4; amortization of prior service cost, $5 million.

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

1. Pension Account Dr, $18

Plant assets (expected return on assets) Dr, $14

       To PBO $28

($20 + $8)

       To Net loss - AOCI (current amortization) $4

(Being pension and plant assets is recorded)

2. Pension Account Dr, $20

Plant assets (expected return on assets) Dr, $12

Net gain—AOCI (current amortization) Dr, $4

       To PBO $36

($20 + $16)

(Being pension, plant assets and net gain is recorded)

3.  Pension Account Dr, $33

Plant assets A/c (expected return on assets) Dr, $12

       To Net loss—AOCI (current amortization) $4

        To PBO $36

($20 + $16)

         To Prior service cost A/c (current amortization) $5

(Being pension and plant assets and pension account is recorded)