Question

Pearl Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan.

		January 1, 2017		December 31, 2017
Vested benefit obligation		$1,400		$2,080
Accumulated benefit obligation		2,080		2,970
Projected benefit obligation		2,420		3,550
Plan assets (fair value)		1,610		2,520
Settlement rate and expected rate of return				10	%
Pension asset/liability		810		?
Service cost for the year 2017				410
Contributions (funding in 2017)				650
Benefits paid in 2017				190

(a) Compute the actual return on the plan assets in 2017.

Actual return on the plan assets: $ ______ (b) Compute the amount of the other comprehensive income (G/L) as of December 31, 2017. (Assume the January 1, 2017, balance was zero.) (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net pension liability gains and losses: $ ______ (c) Compute the amount of net gain or loss amortization for 2017 (corridor approach). Net gain or loss amortization: $ ______ (d) Compute pension expense for 2017. Pension expense: $ ______

Answer 1

Answer:-

Given

		January 1, 2017		December 31, 2017
Vested benefit obligation		$1,400		$2,080
Accumulated benefit obligation		2,080		2,970
Projected benefit obligation		2,420		3,550
Plan assets (fair value)		1,610		2,520
Settlement rate and expected rate of return				10%
Pension asset/liability		810		?
Service cost for the year 2017				410
Contributions (funding in 2017)				650
Benefits paid in 2017				190

a)

Actual Return On Plan Assets

Change in Plan Assets = Ending Plan Assets - Beginning Plan Asstes

= 2,520 - 1,610 = 910

Now,

Actual Return On Plan Assets = Change in Plan Asstes - Contributions + Benefits Paid

= 910 - 650 + 190 = 450

Hence,

Actual Return on Plan Assets = $450

b)

Net Pension Liability Gain or Loss

Particulars	Amount
Projected Benefit Obligation December 31st 2017		$3,550
Projected Benefit Obligation January 1st 2017	$2,420
Interest	+ $242	-
Service Cost	+ $410
Benefits Paid	($190) =	$2,882
Liability Loss		= $668
Fair Value Of Planet Assets December 31st 2017		$2,520
Fair Value Of Planet Assets January 1st 2017	$1,610
Expected Return	+ $161	-
Contibutions	+ $650
Benefits Paid	($190) =	$2,231
Asset Gain		= $289
Net Gain/Loss = Asset Gain - Liability Loss	= $289 - $668	($379)

Hence

Net Pension Liability Gain/Loss = ($379)

c)

Amount of Net Gain/Loss Amortization for 2017 (corridor approach)

Note :- Because no net gain or loss existed at the beginning of the period, no amortization occurs

d)

Pension Expense for 2017

Pension Expense = Service Cost + Interest Cost - Expected Returns

= $410 + $242 - $161

= $491

Hence

Pension Expense for 2017 = $491