The pension plan was amended last year, creating a prior service cost of $170 mi

Q: The pension plan was amended last year, creating a prior service cost of $170 mi

Solution: Calculation of Pension expense: Working Note: Amortization of prior service cost = 170/ 10 = 17 Expected return on the plan assets = actual 21 + loss 1 = 22 In Millions Service cost 44 Interest cost 21 Expected return on the plan assets (21 actual, plus 1 loss) -22 Amortization of prior service cost 17 Amortization of net loss (gain) 0 Pension Expense 60

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Question

The pension plan was amended last year, creating a prior service cost of $170 million. Service cost and interest cost for the year were $44 million and $21million, respectively. At the end of the year, there was a negligible balance in the net gain–pensions account. The actual return on plan assets was $21 million although it was expected to be $22 million. On average, employees’ remaining service life with the company is 10 years.

Complete the below table to calculate the pension expense for the year.

Explanation / Answer

Solution:

Calculation of Pension expense:

Working Note:

Amortization of prior service cost = 170/ 10 = 17

Expected return on the plan assets = actual 21 + loss 1 = 22

In Millions Service cost 44 Interest cost 21 Expected return on the plan assets (21 actual, plus 1 loss) -22 Amortization of prior service cost 17 Amortization of net loss (gain) 0 Pension Expense 60

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The pension plan was amended last year, creating a prior service cost of $170 mi

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