Question

In: Accounting

Barrel Corporation had service and interest costs of $50,000 related to its defined benefit plan for...

Barrel Corporation had service and interest costs of $50,000 related to its defined benefit plan for the year ended December 31, Year 7. THe company's unrecognized prior service cost was $200,000 at December 31, Year 6 and the average remaining service life of the company's employees was 20 years. Plan assets earned an expected and actual return of 10% during Year 7. The company made contributions to the plan of $25,000 and paid benefits of $30,000 during the year. The pension plan had plan assets with a fair value of $300,000 at December 31, Year 6. The PBO was $400,000 at December 31, Year 6 and $420,000 at December 31, Year 7. Barrel's effective tax rate is 30%.

What is funded status of Barrel Corporation's pension plan at December 31, Year 7?

a-$20,000 underfunded

b-$75,000 overfunded

c-$95,000 underfunded

d-$120,000 overfunded

Solutions

Expert Solution

Answer : Option ( C ) $95,000 Underfunded

The funded status of Barrel Corporation's pension plan at 12/31/year7 is the difference between the ending fair value of plan assets and the PBO. The ending PBO of $420,000 is given but the ending fair value of plan must be calculated

FV plan assets, 12/31/year 6              $300,000

Add: contribution                                  25,000

Less : Benefits paid                             (30,000)

Add: Return on plan assets $300,000 * .10    = 30,000

FV plan asset, 12/31/year 7                          $325,000

The funded status is then calculated : $325,000 - $420,000 = $(95000). Because The PBO Exceeds the fair value of the plan assets, this pensionplan is uderfunded.


Related Solutions

Duntroon Corp. has had a defined benefit pension plan for its employees for the last 20...
Duntroon Corp. has had a defined benefit pension plan for its employees for the last 20 years. Relevant information for Duntroon’s December 31, 20X5, fiscal year follows: 1. As at December 31, 20X4, the balance in the defined benefit obligation was $980,000 and the plan assets was $720,000. 2. On January 1, 20X5, there was a past service adjustment that improved the benefits under the plan. The actuary determined the amount of this adjustment to be $90,000. 3. The current...
Taveras Enterprises provides the following information related to its defined benefit pension plan. Balances or Values...
Taveras Enterprises provides the following information related to its defined benefit pension plan. Balances or Values at December 31, 2015 Defined benefit obligation €2,737,000 Fair value of plan assets 2,278,329 Accumulated OCI—Net loss (1/1/15 balance, –0–) 34,220 Other pension plan data: Service cost for 2015 94,000 Actual return on plan assets in 2015 130,000 Interest on January 1, 2015, defined benefit t obligation 164,220 Contributions to plan in 2015 93,329 Benefits paid 140,000 Discount (interest) rate of 6% Instructions (a)...
Hutchison-Sun Corporation has a defined benefit pension plan
Hutchison-Sun Corporation has a defined benefit pension plan. Hutchison-Sun’s policy is to fund the plan annually, cash payments being made at the end of each year. Data relating to the pension plan for 2024 are as follows:   Required:Re-create the journal entries used to record Hutchison-Sun’s 2024 pension expense, gain on plan assets, and funding of plan assets in order to determine the cash paid to the pension trustee as reported in the statement of cash flows.
difference between defined contribution plan and defined benefit plan
difference between defined contribution plan and defined benefit plan
Barrett Corporation manufactures leather products. The corporation uses a non-contributory, defined benefit pension plan for its...
Barrett Corporation manufactures leather products. The corporation uses a non-contributory, defined benefit pension plan for its 230 employees. The footnote to the financial statements relating to the pension plan, in part, stated: Note J. The company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s compensation during the last four years of employment. The company’s funding policy is to contribute annually the maximum amount allowed under...
Mayer Corporation has a defined benefit pension plan. Mayer’s policy is to fund the plan
Mayer Corporation has a defined benefit pension plan. Mayer’s policy is to fund the plan annually, cash payments being made at the end of each year. Data relating to the pension plan for 2021 are as follows:    Required:  Recreate the journal entries used to record Mayer’s 2021 pension expense, gain on plan assets, and funding of plan assets in order to determine the cash paid to the pension trustee as reported in the statement of cash flows.
Blossom Corporation provides the following information about its defined benefit pension plan for the year 2020:...
Blossom Corporation provides the following information about its defined benefit pension plan for the year 2020: Current service cost $225,100 Contribution to the plan 262,600 Past service cost, effective December 31, 2020 25,100 Actual return on plan assets 159,000 Benefits paid 101,000 Net defined benefit liability at January 1, 2020 412,000 Plan assets at January 1, 2020 1,590,000 Defined benefit obligation at January 1, 2020 2,002,000 Interest/discount rate on the DBO and plan assets 10% Blossom follows IRFS.
Pharoah Corporation provides the following information about its defined benefit pension plan for the year 2020:...
Pharoah Corporation provides the following information about its defined benefit pension plan for the year 2020: Current service cost $225,600 Contribution to the plan 263,100 Past service cost, effective December 31, 2020 25,600 Actual return on plan assets 160,000 Benefits paid 106,000 Net defined benefit liability at January 1, 2020 400,600 Plan assets at January 1, 2020 1,600,000 Defined benefit obligation at January 1, 2020 2,000,600 Interest/discount rate on the DBO and plan assets 10% Pharoah follows IFRS. QUESTIONS: A)...
4. Johnson Corporation sponsors a defined benefit pension plan for its employees. On January 1, 2016,...
4. Johnson Corporation sponsors a defined benefit pension plan for its employees. On January 1, 2016, the     following balances relate to this plan. Plan assets                                                         $500,000 Defined benefit obligation 800,000 Pension asset/liability 300,000 As a result of the operation of the plan during 2016, the following additional data are provided by the actuary. Service cost for 2016                                                                                       $150,000 Discount (interest) rate 8% Actual return on plan assets in 2016 60,000 Unexpected loss from change in defined benefit obligation, due...
On January 1, 2019, a company's defined benefit pension plan had a projected benefit obligation (PBO)...
On January 1, 2019, a company's defined benefit pension plan had a projected benefit obligation (PBO) of $380,000. The fair value of its pension plan assets on January 1 was $350,000. During 2019, the company contributed $50,000 to the pension plan and paid pension benefits to retirees in the amount of $70,000. The settlement rate for the pension plan for 2019 was 12%. Service cost for the year was estimated to be $109,000. The expected rate of return on pension...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT