Question

Monty Corp. has the following beginning-of-the-year present values for its projected benefit obligation and market-related values for its pension plan assets.

		Projected Benefit Obligation		Plan Assets Value
2019		$2,100,000		$1,995,000
2020		2,520,000		2,625,000
2021		3,097,500		2,730,000
2022		3,780,000		3,150,000

The average remaining service life per employee in 2019 and 2020 is 10 years and in 2021 and 2022 is 12 years. The net gain or loss that occurred during each year is as follows: 2019, $294,000 loss; 2020, $94,500 loss; 2021, $11,550 loss; and 2022, $26,250 gain. (In working the solution, the gains and losses must be aggregated to arrive at year-end balances.)

Using the corridor approach, compute the amount of net gain or loss amortized and charged to pension expense in each of the four years, setting up an appropriate schedule.

Answer 1

Year	2019	2020	2021	2022
Amortization of net loss - AOCI	$                         0	$                3,150	$                6,300	$                   1,050

Corridor rule for Amortization of net loss - AOCI

If the gain or loss exceed 10% of (Pension benefits obligation or Plan assets at fair value, whichever is higher). In this case, corridor rule allows actuarial gain or loss to be amortized gradually over service life period into income statement.

If the gain or loss less than 10% of (Pension benefits obligation or Plan assets at fair value, whichever is higher). In this case, corridor rule does not allow reporting of amortization of net gain or loss.

Year	2019	2020	2021	2022
Projected benefit obligation	$        2,100,000	$        2,520,000	$        3,097,500	$          3,780,000
Plan assets value	$        1,995,000	$        2,625,000	$        2,730,000	$          3,150,000
Which ever is higher from above	$        2,100,000	$        2,625,000	$        3,097,500	$          3,780,000
10% of higher amount as per Corridor rule	$            210,000	$            262,500	$            309,750	$              378,000
Accumulated OCI at beginning	$                         0	$            294,000	$            385,350	$              390,600
Less: 10% of higher amount as per Corridor rule	$            210,000	$            262,500	$            309,750	$              378,000
Excess at beginning	$                         0	$              31,500	$              75,600	$                12,600
Divided by: Average remaining service life in years	10	10	12	12
Amortization of net loss - AOCI	$                         0	$                3,150	$                6,300	$                   1,050

calculation

Year	2019	2020	2021	2022
Accumulated OCI at beginning	$                         0	$            294,000	$            385,350	$              390,600
Add: Net loss (gain)	$            294,000	$              94,500	$              11,550	$              (26,250)
Less: Amortization of net loss - AOCI	$                      (0)	$              (3,150)	$              (6,300)	$                (1,050)
Accumulated OCI at ending	$            294,000	$            385,350	$            390,600	$              363,300