Question

The following information applies to Riddle Corp.'s defined benefit pension plan for the current year: $600,000 540,000 60,000 150,000 Projected benefit obligation January 1 (before amendment) Plan assets January 1 Pension Asset/Liability, January 1-credit balance Present value of increase in service benefits effective January 1 because of an amendment in the pension plan (not included in the projected benefit obligation above) Settlement rate Contributions to the plan (funding) Service Cost Actual and expected return on plan assets Benefits paid to retirees Prior service cost amortization for the current year 8% 50,000 70,000 55,000 30,000 15,000 A. Compute pension expense for the current year. Show your work.

Answer 1

Here is a summary of the relevant costs associated with a defined benefit pension plan, which sum to the net periodic pension cost that is recognized in each accounting period:

Cost	Explanation
+ Service cost	This is the actuarial present value of benefits related to services rendered during the current reporting period. The cost includes an estimate of the future compensation levels of employees from which benefit payments will be derived.
+ Interest cost	This is the interest on the projected benefit obligation. It is a financial item, rather than a cost related to employee compensation.
+ Actual return on plan assets	This is the difference between the fair values of beginning and ending plan assets, adjusted for contributions and benefit payments. It is a financial item, rather than a cost related to employee compensation.
+ Amortization of prior service costs	When an employer issues a plan amendment, it may contain increases in benefits that are based on services rendered by employees in prior periods. If so, the cost of these additional benefits are amortized over the future periods in which those employees active on the amendment date are expected to receive benefits.
+ Gain or loss	This is the gain or loss resulting from a change in the value of a projected benefit obligation from changes in assumptions, or changes in the value of plan assets.
Net periodic cost

Service cost Interest cost (6,00,000 +150,000)*84%. It expected Retrun on Plan Assets 70,000 60,000 (55,000) Actrial Gain I loss for the period (1.50,000 x 80% Varnostication of past sevice cost Net periodic pension cost. 450,000 12,000 15,000 1,02,000