Question

Hubbard, 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, 2015. 1/1/15 12/31/15 Projected benefit obligation $11,400,000 $11,760,000 Pension assets (at fair value) 6,000,000 6,900,000 Accumulated benefit obligation 2,400,000 2,760,000 Net (gains) and losses -0- 240,000 The service cost component of pension expense for 2015 is $890,000 and the amortization of prior service cost due to an increase in benefits is $180,000. The settlement rate is 10% and the expected rate of return is 8%. What is the amount of pension expense for 2015?
a. $1,766,000
b. $1,730,000
c. $1,658,000
d. $1,490,000

Answer 1

Answer:

b. $1,730,000

Explanation:

Pension expense = $ervice cost component + Opening projected benefit obligation*settlement rate - Opening pension assets*Expected rate of return + Amortization of prior service cost  

= $890,000 + ($11,400,000*0.10) - ($6,000,000*0.08) + $180,000

= $890,000 + $1,140,000 - $480,000 + $180,000

= $1,730,000