The pension plan for General GAP, U.S. company, ended Year 6 with a fair value o
ID: 2578252 • Letter: T
Question
The pension plan for General GAP, U.S. company, ended Year 6 with a fair value of plan assets and projected benefit obligation of $930,000 and $850,000, respectively. The following information pertains to Year 7 for the plan:
Plan contributions: $110,000
Plan benefits paid: $95,000
Service cost: $275,000
Other Comprehensive Income Balances:
- Unrecognized prior serivice cost goes from $225,000 at the end of Year 6 to $210,000 at the end of Year 7
- Current prior service cost: $10,000
- Unrecognized pension gain goes from $85,000 at the end of Year 6 to $90,000 at the end of Year 7
- Current pension gain: $12,000
Discount Rate: 8%
Expected (and Actual) Return on Plan Assets: 9%
Tax Rate: 30%
1.Calculate Net Periodic Pension Cost
2.Calculate the Fair Value of Plan Assets as of the end of Year 7
3.Calculate the Projected Benefit Obligation as of the end of Year 7
4.Calculate the Funded Status as of the end of Year 7
5.Provide the journal entires (include deferred tax impacts) for each of the following events:
a.Contribution to the pension plan
b. Current Year Net Gain
c. Current Year Prior Service Cost
d.Service Cost
e. Interest Cost
f. Return on Plan Assets
g. Amortization of Prior Service Cost
h. Amortization of Net Gain
Explanation / Answer
1) Calculation of net periodic pension cost (Amount in $)
2) Calculation of Fair value of Plan assets at the end of year 7 (Amount in $)
3) Calculation of Projected Benefit Obligation at the end of year 7 (Amt in $)
4) As the PBO balance at the end of year 7($1,098,000) exceed the fair value of plan assets at the end of year 7($1,028,700) by $69,300. Thus the funded status is underfunded plan.
Service Cost 275,000 Add: Interest Cost ($850,000*8%) 68,000 Add: Amortisation of Prior service cost 10,000 Less: Expected Return on Plan Assets ($930,000*9%) (83,700) Less: Current Pension gain (12,000) Net Periodic Pension Cost 257,300Related Questions
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