For a company with a defined pension plan, the fair value of plan assets at the
ID: 2513008 • Letter: F
Question
For a company with a defined pension plan, the fair value of plan assets at the beginning of the year was $500,000. No net gain or loss was recorded in accumulated OCI. On the last day of the discal year, the fair value of plan assets was $620,000. Benefits paid equaled $100,000, and the company made $120,000 in contributions. The discount rate was 10%, and the expected long-term rate of return on plan assets was 12%. The actual return on plan assets was
a. $100,000
b. $60,000
c. $50,000
d. $75,000
Explanation / Answer
The actual return = (Year ending assets – beginning assets) – Contribution + Benefits
= ($ 620,000 - $ 500,000) - $ 120,000 + $ 100,000
= $ 120,000 - $ 120,000 + $ 100,000
= $ 100,000
Hence option “a. $ 100,000” is correct answer.
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