The following data are for the pension plan for the employees of Lockett Company
ID: 2499863 • Letter: T
Question
The following data are for the pension plan for the employees of Lockett Company.
1/1/14 12/31/14 12/31/15
Accumulated benefit obligation $2,500,000 $2,600,000 $3,400,000
Projected benefit obligation 2,700,000 2,800,000 3,700,000
Plan assets (at fair value) 2,300,000 3,000,000 3,300,000
AOCL – net loss -0- 480,000 500,000
Settlement rate (for year) 10% 9%
Expected rate of return (for year) 8% 7%
Lockett’s contribution was $420,000 in 2015 and benefits paid were $375,000. Lockett
estimates that the average remaining service life is 15 years.
#1 The actual return on plan assets in 2015 was a. $300,000. b. $255,000. c. $200,000. d. $155,000.
#2 Assume that the actual return on plan assets in 2015 was $265,000. The unexpected gain on plan assets in 2015 was a. $32,000. b. $55,000. c. $35,000. d. $34,000.
Explanation / Answer
Solution: #1 The actual return on plan assets in 2015 was b. $255,000 ($3,300,000 - $3,000,000) - $420,000 + $375,000 = $255,000 Plan assets (at fair value) 12/31/15 $3,300,000 Less: Plan assets (at fair value) 12/31/14 $3,000,000 Total A $300,000 Lockett’s contribution in 2015 ($420,000) Benefits paid $375,000 Total B ($45,000) Total A + Total B The actual return on plan assets in 2015 $255,000 #2 Assume that the actual return on plan assets in 2015 was $265,000. The unexpected gain on plan assets in 2015 was b. $55,000 ($265,000 - ($3,000,000 X .07) = $55,000.) Actual return on plan assets in 2015 was $265,000 Plan assets (at fair value) 12/31/14 $3,000,000 0.07 ($3,000,000 X .07) $210,000 The unexpected gain on plan assets in 2015 was $265,000 - $210,000 = $55,000 The unexpected gain on plan assets in 2015 was $55,000
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