1. T. Wells Appeasement Group’s defined benefit pension plan specifies annual retirement benefits according to the following pension formula: 1.3% x service years x final year’s salary Benefits are payable at the end of each year in retirement. Marshall Butters, a representative employee in all aspects related to pensions, has worked for Wells since the beginning of 1984. The company expects Marshall to retire at the end of 2023. His current salary is $195,000, but the company projects that his final salary will be $210,000 at retirement. Whereas previously the company’s actuary had predicted that Marshall’s retirement would last 25 years, at the end of 2015, the actuary is now revising that estimate downward to 20 years. When calculating the pension benefit obligation, the actuary uses a discount rate of 7%.
a) Provide the journal entry to record 2015 interest and service costs related to Marshall’s pension benefit. b) Provide the appropriate journal entry to record the actuary’s change in estimate associated with Marshall’s pension benefit.
2. Continuing from question (1), Wells has 30 management employees who earn pension benefits. The actuary determines that management employees are sufficiently similar that it is reasonable to estimate the total PBO for the group by multiplying the PBO for the representative employee (Marshall) by 30. Following this approach, at the beginning of 2015, Wells’ beginning balances were $1.54 million for accumulated other comprehensive income attributable to pension net gains, $720,800 for accumulated other comprehensive income attributable to prior service costs, $15 million for pension plan assets, and $16 million for the pension obligation. These balances were the total pension account balances associated with all company employees receiving pension benefits. Wells contributed $500,000 to the pension fund during 2015. The expected returns on pension plan assets was 7%. Actual returns during the year were 5%.
a) Provide any 2015 journal entries needed to amortize total pension gains or losses or amounts related to prior service costs. b) Provide any necessary closing entries related to 2015 total other comprehensive income for pensions during the period. c) Provide any 2016 journal entries needed to amortize total pension gains or losses or amounts related to prior service costs.