The following information pertains to Rodney Company’s defined benefit pension p
ID: 2480989 • Letter: T
Question
The following information pertains to Rodney Company’s defined benefit pension plan for the year ended December 31, 2016:
• Service cost for 2016 $ 280,000
• Projected benefit obligation on January 1, 2016 2,700,000
• Fair value of pension assets at December 31, 2016 2,500,000
• Accumulated other comprehensive income: prior service cost, 12/31/15 250,000
• Pensions paid during 2016 375,000
• Employer contributions made to the pension trust in October, 2016 150,000
Employer contributions made to the pension trust in January, 2017 50,000
• Market-related value of pension assets at January 1, 2016 2,650,000
• Market-related value of pension assets at December 31, 2016 2,700,000
• Accumulated other comprehensive income: unexpected gains (losses) at
December 31, 2015 300,000
• Fair value of pension assets at January 1, 2016 2,400,000
• Decrease in the projected benefit obligation due to changes in actuarial
assumptions as of December 31, 2016 150,000
• Expected return on pension assets 8%
• Discount rate 6%
• Average remaining service period of current employees as of January 1, 2016
(to be used for all amortization situations) 10 years
Required:
Answer the following questions from the completed workpaper:
What is interest cost for 2016?
What is the actual return for 2016?
What is the expected return for 2016?
What is the amount of the unexpected gain (loss) for 2016?
What is the amortization of prior service cost for 2016?
What is corridor amortization for 2016?
What is pension expense for 2016?
In the adjusting journal entry at 12/31/16 to record pension expense, what is the amount charged to pension expense—hint: $150,000 was charged to pension expense in October, 2016?
In the adjusting journal entry at 12/31/16 to record pension expense, what is the amount
plugged to pension asset/liability?
Refer to the previous question. Is the amount a debit or a credit?
In the adjusting journal entry at 12/31/16 to record pension expense, what is the amount debited or credited to OCI—unexpected gains (losses)?
Refer to previous question. Is the amount a debit or a credit?
What is the projected benefit obligation at 12/31/16?
What is AOCI—PSC at 12/31/16?
What is AOCI—unexpected gains (losses) at 12/31/16?
Explanation / Answer
a) Interest amount for 2016 can be calculateda as
Projected benefit obligation on january 1, 2016 x pension discount rate
using above data we conclude as
= 2700000 x 6% , = 162000
b) Actual return for 2016 can be calculated as
Fair Value of Pension asset as on 31 december, 2016 = 2500000
Less: Fair Value of pension asset as on january 1 , 2016 = 2400000
Increase in fair value of pension asset = 100000
Deduct : contribution to pension asset = 150000
Less: benefits paid = 375000 (225000)
Actual return on pension asset = 325000
c) Pension asset as on jan 1, 2016 = 2400000
Expected retun on plan assets = Pension assets at jan 1, 2016 x expected return
= 2400000 x 8% , = 192000
d)Unexpected gain/ loss can be calculated by comparing expected return and actual return
= Actual return - expected return
= 325000 - 192000 , = 133000 Unexpected gain
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