On January 1, 20X1, Cello Co. established a defined benefit pension plan for its employees. At January 1, 20X1, Cello estimated the service cost for 20X1 to be $45,000. At January 1, 20X2, it estimated 20X2 service cost to be $49,000. On the plan inception date, prior service credit was granted to employees for five years, the period of time between the company’s formation and plan inception. The prior service cost was estimated to be $650,000 at January 1, 20X1. Cello uses a 10%
On January 1, 20X1, Cello Co. established a defined benefit pension plan for its employees. At January 1, 20X1, Cello estimated the service cost for 20X1 to be $45,000. At January 1, 20X2, it estimated 20X2 service cost to be $49,000. On the plan inception date, prior service credit was granted to employees for five years, the period of time between the company’s formation and plan inception. The prior service cost was estimated to be $650,000 at January 1, 20X1. Cello uses a 10% discount rate and assumes a return on plan assets of 9%. The average remaining service life of employees is 20 years, and the company will fund at the end of each year an amount equal to service cost plus interest cost for 20X1 and 20X2.
| December 31, | ||||||
| 20X2 | 20X1 | |||||
| PBO | ? | ? | ||||
| Benefits paid at 12/31 | 2,000 | 0 | ||||
| Fair value of plan assets | ? | 0 | ||||
| Contributions at 12/31 | ? | ? | ||||
| Actual return on plan assets | 3,200 | 0 | ||||
- Prepare T-accounts for Pension asset (liability), OCI—prior service cost, and OCI—net actuarial (gain) loss to show the effects of the entries made in requirements 5 and 6. Label the effects.
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