Question

The following information is provided by Millenium Falcon Importers (MFI) regarding their defined benefit pension plan.

Pension asset/liability (January 1) ($25,000)

Projected benefit obligation, January 1, 2017 ($700,000)

Settlement rate 10%

Service cost $80,000

Contribution in 2017 $150,000

Actual and expected return on plan assets $10,000

Benefits paid to retirees $33,400

Prior service cost amortization for 2017 $60,000

What is the amount of pension expense that MFI should report for 2017?

Answer 1

Computation of Pension expenses 2017 of MFI

Service cost $80,000

+ Interest on Projected benefit obligation $70,000

- Actual and expected return on plan assets ($101,600)

+Prior service cost amortization for 2017 $60,000

Pension expense $108,400

Computation of actual return on plan assets

plan assets / liabilities............................................................... (25,000)

Actual and expected return on plan assets 10,000

Deduct: Contributions...........................................      $150,000

                Less: Benefits paid................................      33,400    116,600

Actual return on plan assets.................................                            $ 101,600