Gibbs Company has 280 employees who are expected to receive benefits under the c
ID: 2497828 • Letter: G
Question
Gibbs Company has 280 employees who are expected to receive benefits under the company's defined-benefit pension plan. The total number of service-years of these employees is 2,800. The actuary for the company's pension plan calculated the following net gains and losses: For the Year Ended December 31 (Gain) Or Loss 2014 $720,000 2015 (634,000) 2016 1,070,000 Prior to 2014, there was no unrecognized net gain or loss. Information about the company's projected benefit obligation and market-related (and fair) value of plan assets follows: As of January 1 2014 2015 2016 Projected benefit obligation $2,180,000 $2,420,000 $3,020,000 Fair value of plan assets 1,760,000 2,540,000 2,630,000 Based on the above information about Gibbs Company, prepare a schedule which reflects the amount of net gain or loss to be amortized by the company as a component of pension expense for the years 2014, 2015, and 2016. The company amortizes net gains or losses using the straight-line method over the average service life of participating employees. Beginning of Year Projected Benefit Obligation Plan Assets Corridor Accumulated OCI (Gain/Loss) Amortization 2014 $ $ $ $ $ 2015 2016
Explanation / Answer
Average remaining service life per employee = Expected future years of service/Number of employees
= 2,800/280
= 10
Amortization of net gain or loss:
Year
Amount ($)
2014
720,000
2015
-634,000
2016
1,070,000
Calculation of Corridor:
The corridor is 10% on the greater of the projected benefit obligation or plan assets:
2014: $2,800,000*10/100 = $218,000
2015: $2,540,000*10/100 = $254,000
2016: $3,020,000*10/100 = $302,000
$720,000 - $254,000 = $466,000/10 = $46,600
$720,000 - $634,000 - $46,600 = $39,400
Schedule reflects net gain or loss to be amortized:
Year
Obligation ($)
Plan assets ($)
Corridor ($)
Accumulated OCI (G/L)
Minimum Amortization ($)
2014
2,180,000
1,760,000
218,000
-
-
2015
2,420,000
2,540,000
254,000
720,000
46,600
2016
3,020,000
2,630,000
302,000
39,400
-
Year
Amount ($)
2014
720,000
2015
-634,000
2016
1,070,000
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