Question

The following defined pension data of Eagle Homes Corporation apply to the year 2017. Projected benefit obligation, January 1, 2017, $1,255,000; Plan assets, January 1, 2017 1,195,600. Discount (settlement)Interest rate 6% ; Service cost 69,000; Contributions (funding) 85,000; Actual return is $50,000 and expected return on plan asset is $43,610; Benefits paid to retirees 52,000; Prior service cost amortization 25,000; Amortization of net loss, 12,00.
1. Compute the pension expense for the year.
a. $200,000.
b. $137,690
c. $280,000.
d. $440,000.
2. Compute expected PBO at 12/31/2017:_______.
a. $1,255,300.
b. $1,359,000.
c. $1,347,300.
d. $1,559,000.

Answer 1

Answer:

1. The pension expense for the year is $137,690. The right answer is b

2. The expected PBO at 12/31/2017 is $1,347,300. The right answer is c

Explanation:

1. In order to calculate the pension expense for the year we would have to make the following calculation:

pension expense for the year=Service cost-expected return on plan asset+interest cost+Prior service cost amortization+Amortization of net loss

interest cost=$1,255,000×6%=$75,300

Therefore,pension expense for the year=$69,000  - $43,610 + $75,300 + 25,000 + $12,000

pension expense for the year=$137,690

The pension expense for the year is $137,690

2. In order to calculate the expected PBO at 12/31/2017 we would have to make the following calculation:

expected PBO at 12/31/2017=PBO January 1, 2017+interest cost+Service cost-Benefits paid

expected PBO at 12/31/2017=$1,255,000+$75,300+$69,000-$52,000

expected PBO at 12/31/2017=$1,347,300

The expected PBO at 12/31/2017 is $1,347,300