Lewis Industries adopted a defined benefit pension plan on January 1, 2021. By making the provisions of the plan retroactive to prior years, Lewis incurred a prior service cost of $2 million. The prior service cost was funded immediately by a $2 million cash payment to the fund trustee on January 2, 2021. However, the cost is to be amortized (expensed) over 10 years. The service cost$280,000 for 2021is fully funded at the end of each year. Both the actuary's discount rate and the expected rate of return on plan assets were 8%. The actual rate of return on plan assets was 10%. At December 31, the trustee paid $23,000 to an employee who retired during 2021.

Required:

Determine each of the following amounts as of December 31, 2021, the fiscal year-end for Lewis:

Explanation

Projected Benefit Obligation Plan Assets Pension Expense

Balance at Jan. 1 $0 $0

Prior service cost 2,000,000 2,000,000

Amortization of prior service cost

($2,000,000 10 years) $200,000

Service cost 280,000 280,000

Interest cost

($2,000,000* 8%) 160,000 160,000

Return on plan assets

Actual ($2,000,000** 10%) 200,000

Expected ($2,000,000** 8%) (160,000)

Retirement payments (23,000) (23,000)

Cash contribution 280,000

Balance at Dec. 31 $2,417,000 $2,457,000 $480,000

I'm not sure why Plan assets include Prior Service Cost of $2,000,000. Doesn't it only include three factors: cash contribution, actual return, and Retired Benefits paid?

Why does Pension expense does not include Amortization Net Gain of 40,000? Doesn't it include Service cost, Interest Cost, Expectes Return Plan Asset, Amortization PSC, and Amortization Loss or (Gain)?