Victor has been asked to do some accounting for the Alexeeff Corp. pension plan.

Question

Victor has been asked to do some accounting for the Alexeeff Corp. pension plan. At the beginning of the period, the ABO is $10 million, PBO is $12 million, and the fair value of plan assets is $8 million. The discount rate is 9%, expected return on assets is $960,000, and the anticipated compensation growth rate is 4%. At the end of the period, it was determined that the actual return on assets was 14%, plan assets were $9 million, and the service cost for the year was $900,000. Ignore amortization of prior service costs and deferred gains and losses. Net pension cost on the income statement for the year is closest to:

A.$1,020,000.
B.$860,000.
C.$900,000.
D.$720,000.

Explanation / Answer

Alexeeff Corporation All Amounts in $ Pension Cost Working Service Cost 900000 Interest Cost @ 9% on PBO 1080000 Actual Return on Plan Assets 1260000 Hence, the Net Pension Cost on the Income Statement will be closest to $ 1,020,000.

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