Question

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2021, Lacy received the following information: Projected Benefit Obligation ($ in millions) Balance, January 1 $ 1,120 Service cost 90 Prior service cost 42 Interest cost(5.0%) 56 Benefits paid (80 ) Balance, December 31 $ 1,228 Plan Assets ($ in millions) Balance, January 1 $ 530 Actual return on plan assets 56 Contributions 2021 90 Benefits paid (80 ) Balance, December 31 $ 596 The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2021. At the end of 2021, Lacy amended the pension formula creating a prior service cost of $42 million. Determine Lacy's pension expense for 2021.

Answer 1

Answer:

$93 Million

Explanation:

The computation of Lacy's pension expense is shown below:-

Service cost                                          $90 Million

Interest cost                                           $56 Million

Expected return on the plan assets     $53 Million

$56 Million - (56 Million - 53 Million)

Amortization of prior service cost                $0*

Amortization of net gain or net loss-AOCI $0

Pension Expense                                    $93 Million

Therefore, the change was at the end of the year, so there will be no changes in amortization of prior service cost in 2021.