Vickie Plato, accounting clerk in the personnel office of Streisand Corp., has b
ID: 2713072 • Letter: V
Question
Vickie Plato, accounting clerk in the personnel office of Streisand Corp., has begun to compute pension expense for 2016 but is not sure whether or not she should include the amortization of unrecognized gains/losses. She is currently working with the following beginning-of-the-year present values for the projected benefit obligation and market-related values for the pension plan:
Projected Plan
Benefit Assets
Obligation Value
2013 $2,200,000 $1,900,000
2014 2,400,000 2,500,000
2015 2,900,000 2,600,000
2016 3,900,000 3,000,000
The average remaining service life per employee in 2013 and 2014 is 10 years and in 2015 and 2016 is 12 years. The net gain or loss that occurred during each year is as follows.
2013 $280,000 loss
2014 85,000 loss
2015 12,000 loss
2016 25,000 gain
Answer the following questions in the Discussion Board:
You are the manager in charge of accounting. Write a memo to Vickie Plato, explaining why in some years she must amortize some of the net gains and losses and in other years she does not need to. In order to explain this situation fully, you must compute the amount of net gain or loss that is amortized and charged to pension expense in each of the 4 years listed above. Include an appropriate amortization schedule, referring to it whenever necessary.
Explanation / Answer
Note:
The corridor rule in the case of pension expense accounting, is a materiality rule which requires that any actuarial gain or loss in excess of the 10% of the PBO or PAV, should be disclosed. It permits charging off such excess gain or loss to the Pension Expense Account over time ie: over the average service life of the employees. In this solution it is done on a straight line basis.
The computation of the amount to be charged to pension expense in each of the four years is given below:
10% Net Gain Excess Loss Remaining Amortisation Corridor or Accumulated subject to Service to Pension Year PBO PAV Amount Loss Loss Amortisation in years Expense per year 2013 2200000 1900000 220000 -280000 -280000 60000 10 6000 2014 2400000 2500000 250000 -85000 -359000 109000 10 10900 2015 2900000 2600000 290000 -12000 -360100 70100 12 5842 2016 3900000 3000000 300000 25000 -329258 29258 12 2438Related Questions
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