Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2021, Lacy received the following information: Projected Benefit Obligation ($ in millions) Balance, January 1 $ 560 Service cost 80 Prior service cost 32 Interest cost(5%) 28 Benefits paid (87 ) Balance, December 31 $ 613 Plan Assets ($ in millions) Balance, January 1 $ 430 Actual return on plan assets 45 Contributions, 2021 80 Benefits paid (87 ) Balance, December 31 $ 468 The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2021. At the end of 2021, Lacy amended the pension formula creating a prior service cost of $32 million. Assume Lacy Construction prepares its financial statements according to International Financial Reporting Standards (IFRS) and that the actuary's discount rate is the rate on high-quality corporate bonds. Required: 1. Determine Lacy’s net pension cost for 2021. 2. Prepare the journal entry(s) to record Lacy’s (a) net pension cost, (b) gains or losses, (c) prior service cost, (d) funding, and (e) payment of retiree benefits for 2021

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2021, Lacy received the following information:

Projected Benefit Obligation	($ in millions)
Balance, January 1		$	560
Service cost			80
Prior service cost			32
Interest cost(5%)			28
Benefits paid			(87	)
Balance, December 31		$	613

Plan Assets	($ in millions)
Balance, January 1		$	430
Actual return on plan assets			45
Contributions, 2021			80
Benefits paid			(87	)
Balance, December 31		$	468

The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2021. At the end of 2021, Lacy amended the pension formula creating a prior service cost of $32 million.

Assume Lacy Construction prepares its financial statements according to International Financial Reporting Standards (IFRS) and that the actuary's discount rate is the rate on high-quality corporate bonds.

Required:
1. Determine Lacy’s net pension cost for 2021.
2. Prepare the journal entry(s) to record Lacy’s (a) net pension cost, (b) gains or losses, (c) prior service cost, (d) funding, and (e) payment of retiree benefits for 2021

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