1.The XYZ Company has maintained a defined-benefit pension plan for its employee
ID: 2425479 • Letter: 1
Question
1.The XYZ Company has maintained a defined-benefit pension plan for its employees for a number of years. At the end of the most recent year, the following information was available: Service cost $285,000 Expected return on plan assets 59,000 Actual return on plan assets 52,000 Plan assets 600,000 Projected benefit obligation 700,000 Funding 220,000 Interest on projected benefit obligation 65,000 Amortization of prior service cost (created when a contractual provision was amended which reduced the projected benefit obligation) 25,000 What should be reported as the pension expense for the year?
2.On January 1, Year One, a company started a defined benefit pension plan for its employees. Assume that the annual service cost is $200,000. Funding is $150,000 each January 1, beginning on January 1, Year One. The interest rate used for discount purposes to determine the projected benefit obligation is 10 percent. Both actual and expected earnings on plan assets are 8 percent. What pension liability should this company report on its December 31, Year Two, balance sheet?
Explanation / Answer
1) The net pension expense for the year would be :
Service cost+interest cost -expensted return on plan asset +amortization of prior service.
285000+65000-59000+25000 = 314000
2) To calculate the pension liability to recorded in books we need to calculte by Present value of the projected benefit obligation - fair market value of the pension asset
therefore it is 700000*present value discounting at 10% for 1 yearsTherefore it is
700000*.909 = 636300
Hence 636300 - fair market value of the pension asset will be the pension liability to be recorded.
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