Villa Company has experienced tough competition, leading it to seek concessions

Question

Villa Company has experienced tough competition, leading it to seek concessions from its employees in the company's pension plan. In exchange for promises to avoid layoffs and wage cuts, the employees agreed to receive lower pension benefits in the future. As a result, Villa amended its pension plan on January 1, 2014, and recorded negative past service cost of $116,200. Current service cost for 2014 is $25,500. Interest expense is $8,700, and interest revenue is $2,600. Actual return on assets in 2012 is $1,400. Compute Villa's pension expense in 2014.

Explanation / Answer

Villa Company Details Amt $ Negative past service cost    (116,200.00) ( no average service life of employees mentioned , so no amortizationis can be calculated and entire amount charged in a year) Add :Current Servcie cost for 2014         25,500.00 Add Interest Expense           8,700.00 Less : Interest revenue         (2,600.00) Less : Actual return on asset in 2014         (1,400.00) Pension expense to be recorded in 2014 $ (86,000.00) So pension expense for 2014 =$ -86,000

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