Question

On January 1, 2018,Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2018 and 2019 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2018. What amount of pension expense should Gillock report in its income statement for the year ended December 31, 2019?

Answer 1

Computation of Pension Expense for the year 2019:-
Service cost		$   600,000
Interest cost (660000*10%)		$     60,000
Expected return on the plan assets (832000*8%)		$    (66,560)
Pension Expense for the year ended December 31, 2019		$   593,440
Computation of Interest Cost for 2019:-
Balance of Projected benefit Obligation on January 1, 2019		$   600,000
Interest Cost for 2019 (600000*10%)		$     60,000
Computation of Actual return for 2019:-
Beginning Balance of Plan Assets as on Jan 1, 2018		$            -
Funding on Jan 1, 2018		$   400,000
Actual return on December 31, 2018 (400000*8%)		$     32,000
Balance of Plan assets on December 31,2018		$   432,000
Current Funding on Jan 1, 2019		$   400,000
Balance of Plan assets on January 1, 2019		$   832,000
Actual return on December 31, 2019 (832000*8%)		$     66,560

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