Question

Harvey Hotels has provided a defined benefit pension plan for its employees for several years. At the end of the most recent year, the following information was available with regard to the plan: service cost: $7.3 million, expected return on plan assets: $2.3 million, actual return on plan assets: $2.1 million, interest cost: $2.5 million, payments to retired employees: $3.1 million, and amortization of prior service cost (created when the pension plan was amended causing a drop in the projected benefit obligation): $2.2 million. What amount should Harvey Hotels report as pension expense in its income statement for the year

Answer 1

Pension expense of Harvey Hotels in its income statement for the year= $9.7 million .

Explanation:

Service cost= $7.3 million

Interest cost= $2.5 million

Amortization of prior service cost= $2.2 million

Expected return on plan assets= $2.3 million

Pension expense=?

Pension expense is decreased by amortization of net gain.

Pension expense= (Service cost+ Interest cost- Expected return on plan assets+ Amortization of prior service cost

                            = (7.3+2.5+2.2)-2.3

                            = 9.7 million

Pension expense of Harvey Hotels in its income statement for the year= $9.7 million