Question

How do we determine the Net Pension Expense?

Service Cost + Interest Cost + Actual return on Pension plan assets +/- Amortization of any deferred amounts.

Service Cost + Interest Cost + Expected return on Pension plan assets +/- Amortization of any deferred amounts.

Service Cost + Interest Cost - Actual return on Pension plan assets +/- Amortization of any deferred amounts.

Service Cost + Interest Cost - Expected return on Pension plan assets +/- Amortization of any deferred amounts.

None of these answers are correct. wayne Corporation reported the following ending balances related to its defined benefit plan as of December 31, 2017: Fair value of Plan assets                      47,872 Projected Benefit Obligation              43,265 Pension Expense                                     4,843 What is wayne’s net pension status as of December 31, 2017? $9,450 net pension asset $4,607 net pension asset $236 net pension liability There is not enough information to determine the answer Benefits paid to retired employees Increase the Plan Assets and decrease the Projected Benefit Obligation. Decrease the Plan Assets and increase the Projected Benefit Obligation Increase the Plan Assets and increase the Projected Benefit Obligation Decrease the Plan Assets and decrease the Projected Benefit Obligation Corey Company used the straight-line method to depreciate its assets for Income Statement purposes, but MACRS (an accelerated method) to depreciate its assets for IRS purposes. As a result of this temporary difference in depreciation amounts corey will recognize a deferred tax asset on its current year’s Income Statement related to this difference. corey will recognize a deferred tax liability on its current year’s Income Statement related to this difference. corey will recognize a deferred tax asset on its current year’s Balance Sheet related to this difference. corey will recognize a deferred tax liability on its current year’s Balance Sheet related to this difference. None of these answers are correct

Answer 1

1. How to determine the Net Pension Expense.

The formula to determine the net pension expense is:

Net Pension expense = Service Cost + Interest Cost - Expected return on Pension plan assets +/- Amortization of any deferred amounts.

Explanation:

Interest cost: The annual Interest accrued on the beginning balance of the project benefit obligation, the interest cost is an expense and it is added in the net pension expense.

Service Cost: Service cost is an expense and it is added to the Net pension expense.

The expected return on Pension plan assets: The Dividend, interest and the capital gain generated in the asset. It lowers the expense.

Amortization of any deferred amounts: It includes the estimate of project benefit obligation as a result of a periodic review of the obligation.

1. What is Wayne's net pension status as of December 31, 2017?

Net pension status = Planned asset – Project benefit obligation (PBO)

Pension expense is added to the project benefit obligation = (43265 + 4843) = 48108 (PBO)

Net pension status = 47872 – 48108 = 236 Net Pension Liability

Since the planned asset is less than PBO it is an underfunded plan

3.Benefits paid to retired employees

Decrease the planned asset and decrease the project benefit obligation.

Since after paying the retired employee the Obligation in terms of Liability will be reduced. And the amount of planned asset will also be reduced as there if the outflow of the fund.

4. Corey Company used the straight-line method to depreciate its assets for Income Statement purposes, but MACRS (an accelerated method) to depreciate its assets for IRS purposes. As a result of this temporary difference in depreciation amounts

None of these answers are correct.

Explanation:

Due to a temporary difference for income statement purpose and IRS purpose, Both Deferred Tax Asset and Deferred tax liability can arise.

Deferred tax liability and deferred tax asset both are shown in the balance sheet as well as in the income statement.

• If the Depreciation in the income statement is Higher and IRS is lower the Deferred tax Asset arises
• If the Depreciation in the income statement is Lower and IRS is Higher than the Deferred Tax Liability arises.
• Deferred tax asset is shown in the income statement to decreases the tax expense and Deferred Tax asset is shown in the Asset side of the balance sheet.
• Deferred tax liability is shown in the liability side of the Balance sheet and It increases the tax expense