Question

The funded status of Hilton Paneling Inc.'s defined benefit pension plan and the balances in prior service cost and the net gain–pensions, are given below.

	($ in 000s)
		2021				2021
	Beginning Balances				Ending Balances
Projected benefit obligation	$	3,700			$	4,201
Plan assets		4,100				4,461
Funded status		400				260
Prior service cost–AOCI		420				390
Net gain–AOCI		426				367

Retirees were paid $253,000, and the employer contribution to the pension fund was $262,000 at the end of 2021. The expected rate of return on plan assets was 10%, and the actuary’s discount rate is 7%. There were no changes in actuarial estimates and assumptions regarding the PBO.

Required:
1. Determine the actual return on plan assets of 2021.
2. Determine the loss or gain on plan assets of 2021.
3. Determine the service cost of 2021.
4. Determine the pension expense of 2021.
5. Average remaining service life of active employees (used to determine amortization of the net gain).

(For all requirements, enter your answers in thousands (i.e. 200,000 should be entered as 200)

Answer 1

(1)

To calculate Actual Return on Plan Assets	($ in 000s)
Beginning Balance of Plan Assets	$4,100
Add: Actual Return	?
Cash Contributions from Employer	262
Less: Benefits of Retiree	(253)
Ending Balance of Plan Assets	$4,461

Therefore,

Actual Return on Plan Assets = Ending Balance of Plan Assets – (Beginning Balance of Plan Assets + Cash Contributions from Employer - Benefits of Retiree)

= $ [4,461 – (4,100 + 262 – 253)] = $352

(2)

To calculate the loss on Plan Assets	($ in 000s)
Expected Return on Plan Assets (10% of $4100)	$ 410
Actual Return on Plan Assets (refer 1)	(352)
Loss on Plan Assets	$          58

(3)

To calculate Service Cost	($ in 000s)
Beginning Balance of Projected Benefit Obligation	$3,700
Add: Service Cost	?
Interest Cost (7% of $3,700)	259
Loss/Gain on Projected Benefit Obligation	0
Less: Benefits of Retiree	(253)
Ending Balance of Projected Benefit Obligation	$ 4,201

Therefore,

Service Cost = Ending Balance of Projected Benefit Obligation – (Beginning Balance of Projected Benefit Obligation + Interest Cost - Benefits of Retiree)

= $[4,201 – (3,700 + 259 – 253)] = $495

(4)

To calculate Pension Expense	($ in 000s)	Computation
Service Cost	$ 495	Refer 3
Interest Cost	259	7% of $3,700
Expected Return on Plan Assets	(410)	10% of $4100
Prior Service Cost-AOCI amortized	30	Beginning Bal. - Ending Bal. $(420 – 390)
Net Gain-AOCI amortized	(1)	Beginning Bal. - Ending Bal. – Loss on Plan Assets $(426 – 367 – 58)
Pension Expense	$ 373	Sum of the above

(5)

To calculate the average remaining service life of Active employees	($ in 000s)
Net Gain-AOCI (Beginning Balance)	$426
Less: Expected Return on Plan Assets (10% of $4100)	$(410)
Excess Amount	$ 16
Amount amortized	$1
Average Service Period (Excess Amount / Amount Amortized)	$16/ $1 = 16years

if any doubts please mention in comment