Question

Alejandro, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2016. January 1, 2019 December 31, 2019 Fair value of pension plan assets $4,200,000 $4,500,000 Projected benefit obligation 4,800,000 5,160,000 Accumulated benefit obligation 840,000 1,020,000 Accumulated OCI – (Gains / Losses) -0- (90,000) The service cost component of pension expense for 2016 is $450,000 and the amortization of prior service cost due to an increase in benefits is $60,000. The settlement rate is 10% and the expected rate of return is 10%. What is the amount of pension expense for 2016?

Answer 1

Answer: $570,000

Explanation:

The amount of pension expense for 2016 is calculated below:

Service cost = $450,000

Add: Interest on projected benefit obligations = 10% × 4,800,000 = $480,000

Less: Expected return on plan assets = 10% × $4,200,000 = $420,000

Add: Amortization of prior service cost = $60,000

Pension expense = $570,000