Question

For Warren Corporation, year-end plan assets were $2,000,000. At the beginning of the year, plan assets were $1,780,000. During the year, contributions to the pension fund were $120,000, and benefits paid were $200,000. Compute Warren’s actual return on plan assets.

Answer 1

Answer:

Warren’s actual return on plan assets is $219,908

Explanation:

Year-end plan assets = plan assets at the beginning of the year x (1+ rate of investment) + benefits paid - contributions to the pension fund

⇔ $2,000,000 = $1,780,000 *(1+ rate) + $200,000 - $120,000

⇔ 1,920,000 = 1,780,000* (1 +rate)

-> rate = 1,920,000 / 1,780,000 - 1 =  7.86%

The interest on this investment = plan assets at the beginning of the year x rate of investment

= $1,780,000 * 7.86% = $139,908

Actual return on plan assets  = interest on investment + benefits paid - contributions to the pension fund

= $139,908 + $200,000 - $120,000 = $219,908