Pension Expense Basics

Question 1

What are the five components of pension expense?

Answer 1

1) Service Cost- Increase in PBO attributable to service for the year. Service cost is a present value amount
2) Interest Expense- The growth of PBO for the period due to the passage of time (discount rate*PBO at Jan 1)
3) Expected return on plan assets- The expected amount of growth in the pension fund for the year = (expected rate of return)(plan assets at Jan 1) - Decreases expense

Question 2

What is the service cost?

Answer 2

Present value of the defined benefit (FOR THE CURRENT YEAR)

Question 3

How do you calculate interest cost?

Answer 3

Beginning period of PBO X Discount Rate

Question 4

Expected return on plan assets?

Answer 4

Beginning fair value of plan assets X expected return on plan assets

Reduces pension expense

Question 5

When a company contributes plan assets, what is the journal entry?

Answer 5

Net Pension Asset/Liability DB

Cash CR

Question 6

What is the journal entry to record pension expense?

Answer 6

Pension Expense XX

Net Pension asset/liability XX

Question 7

What impacts the PBO account balance through the year?

Answer 7

Beginning PBO XX
+ Interest Cost XX
+ Service Cost XX
Ending PBO XX

Question 8

What impacts plan assets?

Answer 8

Beginning plan assets XX
+ Actual Return on plan XX
Ending Plan XX

Question 9

How do you solve for net pension asset/liabiity?

Answer 9

Difference between ending PBO and Plan Assets