Question

Keeton Company sponsors a defined benefit pension plan for its 600 employees. The company’s actuary provided the following information about the plan.

		January 1,		December 31,
		2017		2017		2018
Projected benefit obligation		$2,800,000		$3,650,000		$4,195,000
Accumulated benefit obligation		1,900,000		2,430,000		2,900,000
Plan assets (fair value and market-related asset value)		1,700,000		2,900,000		3,790,000
Accumulated net (gain) or loss (for purposes of the corridor calculation)		0		198,000		(24,000	)
Discount rate (current settlement rate)				9	%	8	%
Actual and expected asset return rate				10	%	10	%
Contributions				1,030,000		600,000

The average remaining service life per employee is 10.5 years. The service cost component of net periodic pension expense for employee services rendered amounted to $400,000 in 2017 and $475,000 in 2018. The accumulated OCI (PSC) on January 1, 2017, was $1,260,000. No benefits have been paid.

Correct answer iconYour answer is correct.

Compute the amount of accumulated OCI (PSC) to be amortized as a component of net periodic pension expense for each of the years 2017 and 2018.

Amount of accumulated OCI (PSC) to be amortized for the year 2017		$
Amount of accumulated OCI (PSC) to be amortized for the year 2018		$

Prepare a schedule which reflects the amount of accumulated OCI (G/L) to be amortized as a component of pension expense for 2017 and 2018.

Year		Projected Benefit Obligation		Plan Assets		10% Corridor		Accumulated OCI (G/L)		Minimum Amortization of (Gain) Loss
2017		$		$		$		$

$

2018

Determine the total amount of pension expense to be recognized by Keeton Company in 2017 and 2018.

Pension expense for 2017		$
Pension expense for 2018		$

Answer 1

ANSWER:-

Calculation of Pension Expense;

Year 2017
Service cost	400,000
Interest cost	252,000
Amortization of Prior Service Cost	120,000
Expected return on Plan Assets	(17000)
Pension Expense	$755,000

Year 2018
Service cost	475,000
Interest cost	292,000
Amortization of prior service cost	120,000
Expected return on plant assets	(290,000 )
Pension expense	$597,000

Pension Expense for 2017	$755,000
Pension Expense for 2018	$597,000

Working Notes
1) Calculation of interest cost
Year 2017
Projected Benefit Obligation as on 01/01/2017	2,800,000
Discount rate	9%
Interest cost (2,800, 000 * 9% )	252,000
Year 2018
Projected Benefit Obligation as on 01/01/2018	3,650,000
Discount rate	8%
Interest cost (3,650,000 * 9% )	292,000
2) Amortization of prior service cost
Accumulated OCI (PSC) as on 01/01/2017	1,260,000
Average remianing life of employees	10.5
Amortization pf PSC per year ( 1,260,000 / 10.5 )	120,000

3) Calculation of Expected return
Year 2017
Plant assets as on 01/01/2017	17,00,000
Expected rate of return	10%
Expected return ( 17,00 000 * 10% )	170,000
Year 2018
Plant assets as on 01/01/2018	2900, 000
Expected rate of return	10%
Expected rate of return ( 2900,000 * 10% )	290,000

4) Calculation of Amortization of OCI
In Year 2017 there was no beginning balance therefore no amortization required in 2017.
In Year 2018
Accumulated Net ( gain ) or loss at the beginning of year	198,000
10% Corridor of larger of PBO or Plan Assets
i. e. higher of ( 3,650,000 * 10 or ( 2900,000 * 10% )	3,650,000
As 10% Carridor amount is greater than the beginning balance therefore no amortization will be required.

-----------------------------------------------------------------------

If you have any queries please ask me in the comment i am here for help you. Please do not direct thumbs down just ask if you have any query. And if you like my work then please appreciates with up vote.

***********THANK YOU************