1. The Miller Corporation has had a defined benefit pension plan for its employe
ID: 2427510 • Letter: 1
Question
1. The Miller Corporation has had a defined benefit pension plan for its employees for a number of years. At the beginning of Year One, the projected benefit obligation is $4 million. The company also has plan assets of $3 million. Service cost for Year One is $440,000. The company transfers $360,000 in cash to the pension plan on December 31, Year One as funding for the pensions. The discount rate used for the projected benefit obligation is 12 percent. Company officials expect the plan assets to generate revenue at a 10 percent rate but, in Year One, only 7 percent is actually earned. What amount of pension expense should be recognized for Year One? a. $260,000 b. $350,000 c. $620,000 d. $710,000
2. At the end of Year One, in connection with a defined pension benefit plan, Major Company has a deferred loss of $600,000 which arose from the difference in its expected and actual earnings on plan assets as well as a change in an actuarial assumption. On that date, the expected average remaining service life of the employees is assumed to be ten years. In addition, the projected benefit obligation is $5.6 million and the plan assets amount to $4.9 million. Which of the following statements is true in connection with this $600,000 deferred loss? a. Pension expense for Year One is increased by $4,000. b. Pension expense for Year Two is increased by $4,000. c. Pension expense for Year One is increased by $11,000
Explanation / Answer
ANSWER 1) PENSION EXPENSE TO RECOGNISE IN YEAR 1
SERVICE COST = $ 440000
LESS; EXPECTED RETURN FROM PLAN ASSET ($ 30LAKH X 7%) = $ 210000
ADD: INTEREST COST ($ 40LAKKH X 12%) = $ 480000
PENSION EXPENSE TO RECOGNISED $ 710000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.