Exercise 20-8 Pronghorn Corp. has the following beginning-of-the-year present va

ID: 2575730 • Letter: E

Question

Exercise 20-8

Pronghorn Corp. has the following beginning-of-the-year present values for its projected benefit obligation and market-related values for its pension plan assets.

Projected
Benefit
Obligation

Plan
Assets
Value

The average remaining service life per employee in 2016 and 2017 is 10 years and in 2018 and 2019 is 12 years. The net gain or loss that occurred during each year is as follows: 2016, $302,400 loss; 2017, $97,200 loss; 2018, $11,880 loss; and 2019, $27,000 gain. (In working the solution, the gains and losses must be aggregated to arrive at year-end balances.)

Using the corridor approach, compute the amount of net gain or loss amortized and charged to pension expense in each of the four years, setting up an appropriate schedule.

Year

Minimum Amortization of Loss

Projected
Benefit
Obligation

Plan
Assets
Value

2016 $2,160,000 $2,052,000 2017 2,592,000 2,700,000 2018 3,186,000 2,808,000 2019 3,888,000 3,240,000

Explanation / Answer

corridor and minimum loss amortization

year

projected benefit obligation

plan asset value

10% corridor

accumulated OCI(G/L)---(a)

minimum amortization of loss

2016

$2,160,000

$2,052,000

$216,000

2017

$2,592,000

$2,700,000

$270,000

$302,400

$3,240----(b)

2018

$3,186,000

$2,808,000

$318,600

$396,360-----©

$6,480----(d)

2019

$3,888,000

$3,240,000

$388,800

$401,760---(e)

$1,080-----(f)

Working notes

(a) As of the beginning of the year

(b) (302,400-270,000)/10years=$3,240

(c) (302,400-3,240)+97,200=$396,360

(d)(396,360-318,600)/12years=$6480

(e)(396,360-6,480)+11,880=$401,760

(f)(401,760-388,800)/12years=$1,080