Refer to the situation described in Problem. Assume Electronic Distribution prepares its financial statements according to International Financial Reporting Standards. Also assume that 10% is the current interest rate on high-quality corporate bonds.

Required:

1. Calculate the net pension cost for 2016, separating its components into appropriate categories for reporting.

2. Prepare the journal entry to record the components of net pension cost, gains or losses, past service cost, funding, and payment of benefits for 2016.

3. What amount will Electronic Distribution report in its 2016 balance sheet as a net pension asset or net pension liability?

Problem

Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2016 are as follows:

 

The expected long-term rate of return on plan assets was 8%. There were no AOCI balances related to pensions on January 1, 2016, but at the end of 2016, the company amended the pension formula creating a prior service cost of $12 million.

Required:

1. Calculate the pension expense for 2016.

2. Prepare the journal entry to record pension expense, gains or losses, prior service cost, funding, and payment of benefits for 2016.

3. What amount will Electronic Distribution report in its 2016 balance sheet as a net pension asset or net pension liability?

(S millions): PBO balance, January 1 $480 Plan assets balance, January 1 300 Service cost 75 Interest cost Gain from change in actuarial assumption 22 Benefits paid Actual return on plan assets 45 (36) 20 Contributions 2016 60