At the end of Year One, in connection with a defined pension benefit plan, Major
ID: 2415429 • Letter: A
Question
At the end of Year One, in connection with a defined pension benefit plan, Major Company has a deferred loss of $600,000 which arose from the difference in its expected and actual earnings on plan assets as well as a change in an actuarial assumption. On that date, the expected average remaining service life of the employees is assumed to be ten years. In addition, the projected benefit obligation is $5.6 million and the plan assets amount to $4.9 million. Which of the following statements is true in connection with this $600,000 deferred loss?
a.Pension expense for Year One is increased by $4,000.
b.Pension expense for Year Two is increased by $4,000.
c.Pension expense for Year One is increased by $11,000.
d.Pension expense for Year Two is increased by $11,000.
The Wilston Corporation has a large defined pension benefit plan for its employees. Currently, the projected benefit obligation is $44 million and plan assets amount to $37 million. The earnings on the plan assets are expected to be 7 percent per year over the next few years. In the current year, the actual earnings were 8 percent. Which of the following statements is not true?
a.In computing its pension expense for the current year, the 7 percent expected return should ultimately be used to reduce the expense rather than the 8 percent actual return.
b.In arriving at the plan asset balance at the end of the year, the 8 percent actual earnings should be included rather than the 7 percent expected return.
c.The difference between the 7 percent expected return and the 8 percent actual return increases a deferred gain and has no direct impact on the pension expense.
d.The 1 percent by which actual earnings were in excess of expected earnings serves to reduce pension expense for the current year.
Explanation / Answer
1) b.Pension expense for Year Two is increased by $4,000.
2) c)The difference between the 7 percent expected return and the 8 percent actual return increases a deferred gain and has no direct impact on the pension expense.
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