The following information is for the pension plan for the employees of Payne, In

Question

The following information is for the pension plan for the employees of Payne, Inc.

Payne estimates that the average remaining service life is 15 years. Payne's contribution was $616,000 in 2018 and benefits paid were $320,000.

(a)

Calculate the interest cost for 2018.

(b)

Calculate the actual return on plan on assets for 2018

(c)

Calculate the unexpected gain or loss in 2018

(d)

Calculate the corridor for 2018 and the amorazation of the net gain for 2018

12/31/17 12/31/18 Accumulated benefit obligation $2,920,000 $3,880,000 Projected benefit obligation 3,220,000 4,120,000 Fair value of plan assets 3,250,000 3,750,000 AOCI - Net (gain) or loss (545,000) (600,000) Settlement rate 7% 7% Expected rate of return 6% 5%

Explanation / Answer

SOLUTION

(A) Interest Cost = $3,220,000 * 7% = $225,400.

(B)

(C)

(D)3,250,000 * 10%= $325,000, 3,220,000 *10% = 322,000

The corridor is the larger -  $325,000

$545,000 -  $325,000 = $220,000

Mmortization of net gain = $220,000 / 15 = $14,667

Amount ($) Fair value of plan assets (12/31/18) 3,750,000 Fair value of plan assets (1/1/18) (3,250,000) 500,000 Contributions (616,000) Benefits paid 320,000 Actual return on plan assets 296,000

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