Annual salary 600,000.

00
Multiply: Future value of 1 at 4% at 10 periods 1.480
Final salary 888,000.00

Annual pension payment (888,000 x 2% x 15 years) 266,400.00

Multiply: PV of an ordinary annuity of 1 at 10% for 8 periods 5.335
Present value- December 31, 2029 1,421,244.00
Multipy: PV of 1 at 10% for 10 periods 0.386
Requirement Projected benefit obligation- December 31, 2019 548,600.18
 Final salary 1,500,000.00
Multiply: Percentage of lump sum pension 5%
Annual benefit 75,000.00

Year Annual Benefit PV Factor Present Value

2019 75,000.00 0.361 27,075.00
2020 75,000.00 0.404 30,300.00
2021 75,000.00 0.452 33,900.00

Current Interest
Date Present Value
Service Cost Expense
Dec. 31, 2019 27,075.00 - 27,075.00
Dec. 31, 2020 30,300.00 3,249.00 60,624.00
Dec. 31, 2021 33,900.00 7,274.88 101,798.88

Current Interest
Requirement Date Total
Service Cost Expense
Dec. 31, 2019 27,075.00 - 27,075.00
Dec. 31, 2020 30,300.00 3,249.00 33,549.00
Dec. 31, 2021 33,900.00 7,274.88 41,174.88
 Current service cost
Add: Interest expense (10% x 7,500,000)
Less: Interest income (10% x 7,000,000)
Gain on plan settlement:
PV of defined benefit obligation settled 500,000
Settlement price of defined benefit obligation (400,000)
Requirement 1 Employee benefit expense

Actual return on plan assets

Less: Interest income
Remeasurement gain on plan assets
Add: Actuarial gain- decrease in projected benefit obligation
Requirement 2 Net remeasurement gain- December 31

Fair value of plan assets- January 1

Add: Contribution to the plan
Actual return
Less: Benefits paid to retirees
Settlement price of defined benefit obligation
Requirement 3 Fair value of plan assets- December 31

Projected benefit obligation- January 1

Add: Current service cost
Interest expense
Less: Benefits paid to retirees
Decrease in projected benefit obligation
Present value of defined benefit obligation settled
Requirement 4 Projected benefit obligation- December 31

Accrued benefit cost- January 1

*Debit adjustment
Requirement 5 Accrued benefit cost- December 31

Journal entry:
Employee benefit expense 1,350,000
*Prepaid benefit cost 190,000
Cash 1,200,000
Remeasurement gain 340,000

Reconciliation:
Fair value of plan assets- December 31
Less: Projected benefit obligation- December 31
Accrued benefit cost- December 31
1,400,000
750,000
(700,000)

(100,000)
1,350,000

840,000
(700,000)
140,000
200,000
340,000

7,000,000
1,200,000
840,000
(1,500,000)
(400,000)
7,140,000

7,500,000
1,400,000
750,000
(1,500,000)
(200,000)
(500,000)
7,450,000

(500,000)
190,000
(310,000)

7,140,000
(7,450,000)
(310,000)
 Current service cost
Add: Interest expense
Projected benefit obigation 10,000,000
Discount rate 9%
Less: Interest income
Fair value of pension fund 9,200,000
Discount rate 9%
Requirement 1 Pension expense

Actual return on pension fund

Less: Interest income
Requirement 2 Remeasurement loss

Accrued benefit cost- January 1

*Credit adjustment
Pension liability (Accrued benefit cost)- December 31,
Requirement 3 2019

Journal entry:
Employee benefit cost 1,272,000
Remeasurement loss 578,000
Cash
*Accrued benefit cost

Reconciliation:
Fair value of pension fund- January 1
Add: Actual return on the pension fund
Contribution to the fund
Less: Benefits paid to retirees
Fair value of pension fund- December 31

Projected benefit obligation- January 1

Add: Current service cost
Interest expense
Less: Benefits paid to retirees
Projected benefit obligation- December 31

Fair value of pension fund- December 31

Less: Projected benefit obligation- December 31
Pension liability (Accrued benefit cost)- December 31,
2019
 1,200,000

900,000

(828,000)
1,272,000

250,000
(828,000)
(578,000)

(800,000)
(800,000)
(1,600,000)

1,050,000
800,000

9,200,000
250,000
1,050,000
(1,100,000)
9,400,000

10,000,000
1,200,000
900,000
(1,100,000)
11,000,000

9,400,000
(11,000,000)

(1,600,000)
 Current service cost
Add: Past service cost for the current year
Interest expense:
Projected benefit obigation 2,200,000
Discount rate 5%
Less: Interest income
Fair value of plan assets 2,100,000
Discount rate 5%
Requirement 1 Employee benefit expense

Workback:
Fair value of plan assets- December 31
Less: Fair value of plan assets- January 1
Contribution to the fund
Add: Benefits paid
Requirement 2 Actual return on plan assets

Workback:
Projected benefit obligation- December 31
Less: Projected benefit obligation- January 1
Current service cost
Interest expense
Past service cost for the current year
Add: Benefits paid
Requirement 3 Actuarial loss- increase in projected benefit obligation

Actual return on plan assets

Less: Interest income
Remeasurement gain on plan assets
Less: Actuarial loss- increase in PBO
Requirement 4 Net remeasurement gain

Accrued benefit cost- January 1

No adjustment
Requirement 5 Accrued benefit cost- December 31

Journal entry:
Employee benefit expense 150,000
Cash
Remeasurement loss

Reconciliation:
Fair value of plan assets- December 31
Less: Projected benefit obligation- December 31
Accrued benefit cost- December 31
 30,000
115,000

110,000

(105,000)
150,000

2,400,000
(2,100,000)
(21,000)
31,000
310,000

2,500,000
(2,200,000)
(30,000)
(110,000)
(115,000)
31,000
76,000

310,000
(105,000)
205,000
(76,000)
129,000

(100,000)
-
(100,000)

21,000
129,000
 2,400,000
(2,500,000)
(100,000)
 Workback:
Fair value of plan assets- December 31 3,000,000
Less: Fair vaue of plan assets- January 1 (2,600,000)
Contribution to the plan (350,000)
Add: Benefits paid 150,000
Requirement 1 Actual return on plan assets 200,000

Workback:
Projected benefit obligation- December 31 2,100,000
Less: Projected benefit obligation- January 1 (2,000,000)
Current service cost (100,000)
Interest expense:
Projected benefit obligation- Januar 2,000,000
Discount rate 10% (200,000)
Add: Benefits paid 150,000
Requirement 2 Actuarial gain due to decrease in PBO (50,000)

Current service cost 100,000

Add: Interest expense on effect of asset ceiling
Effect of asset ceiling- January 1 400,000
Discount rate 10% 40,000
Interest expense
Projected benefit obigation- January 2,000,000
Discount rate 10% 200,000
Less: Interest income
Fair value of plan assets 2,600,000
Discount rate 10% (260,000)
Requirement 3 Employee benefit expense 80,000

Actual return on plan assets 200,000

Less: Interest income (260,000)
Remeasurement loss on plan assets (60,000)
Add: Actuarial gain due to decrease in PBO 50,000
Less: *Remeasurement loss on effect of asset ceiling (160,000)
Requirement 4 Net remeasurement loss (170,000)

Change in the effect of asset ceiling:

Effect of asset ceiling- December 31 600,000
Effect of asset ceiling- January 1 (400,000) 200,000
Less: Interest expense on effect of asset ceiling (40,000)
*Remeasurement loss on effect of asset ceiling 160,000