Question

The city of Whitehall provides a defined benefit pension plan for employees of the city water department, an enterprise fund. Assume that the service cost component is $420,000, and interest on the pension liability is $380,000 for the year. Actual returns on plan assets for the year were $300,000 while the projected level of earnings on plan investments was $360,000. This difference is to be amortized over a 5 year period, beginning this year. Finally assume the City is amortizing a deferred inflow resulting from a change in plan assumptions from a prior year in the amount of $10,000 per year. What is the total pension expense for the current year?

$442,000

$362,000

$436,000

$402,000

Answer 1

Answer is Option A)

Working is given below

Calculation of pension expense Service cost Interest cost Amortization-deferred inflow Total Less: Expected return on Plan assets $420,000 $380,000 -$10,000 $790,000 $360,000 $430,000 Add: Amortization of return on assets Pension expense $12,000 ($360,000-$300,000)/5 $442,000