Question

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The following table shows the beginning-of-the-year present values for its projected benefit obligation and market-related values for XTRA Inc's pension plan assets, for the years 2019-2022. The table also shows the gains or losses that occurred each year. There was no cumulative unamortized gain or loss related to the pension assets as of the beginning of 2019. Gain or loss that Beginning Projected Benefit Obligation Beginning market related value of plan occurred during the assets year 165,000 gain 900,000 1,000,000 2019 40,000 gain 1,100,000 1,250,000 2020 30,000 loss 1,600,000 1,450,000 2021 15,000 loss 2,000,000 2,100,000 2022 In the years 2019 and 2020, the average remaining service-life per employee was 10 years; in the years 2021 and 2022, it was 8 years. Set up an appropriate amortization schedule that will show the amount of net gain or loss that should be amortized to pension expense in each of these four years. (Round all answers to the nearest whole dollar.)

Answer 1

Amortization Schedule

Years	Amortized net gain or loss for pension expense
2019	6,500
2020	-
2021	-
2022	-

Working notes -

a) For the year 2019 - So given values are Beginning PBO = 1,000,000 , Beginning market related value of plan assets = 900,000. So we are going to take the 10% of the larger of these two in order to amortize the net gain or loss to pension expense.

10% of beginning PBO (Also called as corridor for amortization) = 100,000

Now we will compare this value with the gain or loss occurred during the year.

Gain occurred during the year = 165,000 (given)

If the gain or loss occured during the year is greater than the corridor for amortization, then we can say that we have exceeded the corridor and now we can calculate the amortization.

Amotized gain or loss = Exceeded amount/ remaining service period = 65,000/10 = 6,500

b) For the year 2020 - So given values are Beginning PBO = 1,250,000 , Beginning market related value of plan assets = 1,100,000. So we are going to take the 10% of the larger of these two in order to amortize the net gain or loss to pension expense.

10% of beginning PBO (Also called as corridor for amortization) = 125,000

Now we will compare this value with the gain or loss occurred during the year.

Gain occurred during the year = 40,000 (given)

If the gain or loss occured during the year is greater than the corridor for amortization, then we can say that we have exceeded the corridor and in this case gain is less than the corridor so we can't calculate the amortized amount.

c) For the year 2021 - So given values are Beginning PBO = 1,600,000 , Beginning market related value of plan assets = 1,450,000. So we are going to take the 10% of the larger of these two in order to amortize the net gain or loss to pension expense.

10% of beginning PBO (Also called as corridor for amortization) = 160,000

Now we will compare this value with the gain or loss occurred during the year.

Loss occurred during the year = 30,000 (given)

If the gain or loss occured during the year is greater than the corridor for amortization, then we can say that we have exceeded the corridor and in this case gain is less than the corridor so we can't calculate the amortized amount.

d) For the year 2022 - So given values are Beginning PBO = 2,100,000 , Beginning market related value of plan assets = 2,000,000. So we are going to take the 10% of the larger of these two in order to amortize the net gain or loss to pension expense.

10% of beginning PBO (Also called as corridor for amortization) = 210,000

Now we will compare this value with the gain or loss occurred during the year.

Loss occurred during the year = 15,000 (given)

If the gain or loss occured during the year is greater than the corridor for amortization, then we can say that we have exceeded the corridor and in this case gain is less than the corridor so we can't calculate the amortized amount.