Question

(TCO 2) Please describe the way pension cost is derived by FASB.  

Please describe what is meant by over or under funded pension plan. If a plan is overfunded, what kind of account is it.. If underfunded?

Determine if the following plan is over or under funded

Jakes Hammer. has the following information related to its defined benefit pension plan:

December 31, Year 1
Projected benefit obligation	$1,800,000
Fair value of plan assets	1,600,000
Unrecognized prior service cost	200,000
Unrecognized net transition asset	60,000
December 31, Year 2
Projected benefit obligation	$1,760,000
Fair value of plan assets	2,670,000
Service cost	230,000
Assumptions
Discount rate	6%
Expected return on plan assets	8%

Jakes Hammer makes an annual pension plan contribution of $220,000. The company's employees had an average remaining service life of 15 years on December 31, Year 1. The company paid benefits of $90,000 in Year 2 and expects to pay benefits totaling $190,000 to retired employees in Year 3. Jakes HammerBig Books has an effective tax rate of 35 percent. The actual return on plan assets was 12 percent. What is the funded status of Jakes Hammer pension plan on December 31, Year 1?

Answer 1