On January 1, 20X2, Derek Co.’s defined benefit pension plan had plan assets wit
ID: 2551629 • Letter: O
Question
On January 1, 20X2, Derek Co.’s defined benefit pension plan had plan assets with a fair value of $750,000, and a projected plan obligation of $875,000. In addition: Actual and expected return on plan assets – 7% Interest cost – 9% Service costs - $24,000 Unamortized prior service cost - $120,000 Employer contributions to the plan - $45,000 Distributions to employees from the plan - $60,000 Unamortized prior service cost is being amortized over the expected remaining service lives of covered employees, which consists of a total of 9 employees:
Explanation / Answer
Answer
At January 1, 20X2, the expected remaining service lives of covered employees consists of
2 employees at 9 years = 18 years,
3 employees at 6 years = 18 years,
4 employees at 1 year = 4 years
As a result, there are a total of 18+18+4 or 40 service years remaining.
All 9 employees will have worked during 20X2 indicating
that amortization will be
=9/40 x $120,000
= $27,000.
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