On January 2, Year 1, Lake Co. established a noncontributory defined-benefit pen
ID: 2438432 • Letter: O
Question
On January 2, Year 1, Lake Co. established a noncontributory defined-benefit pension plan covering all employees and contributed $400,000 to the plan. At December 31, Year 1, Lake determined that the Year 1 service and interest costs on the plan were $760,000. The expected and the actual rate of return on plan assets for Year 1 was 10%. Lake’s pension expense has no other components. What amount should Lake report in its December 31, Year 1, balance sheet as liability for pension benefits?
a. $280,000
b. $320,000
c. $360,000
d. $720,000
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Explanation / Answer
Solution
Return on plan assets = ($400000*10%).= $40000
Projected benefit obligation = $760000
Fair value of plan assets = $400000 + $40000 = $440000
Liability for pension benefit = ($760000 - $440000) = $320000
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