On January 1, 2024, Onyeocha Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2024 and 2025 was $740,000. The interest rate used to determine the projected benefit obligation is 12%. Both the actual and the expected return on plan assets are 10% for both years. Onyeocha funded the plan in the amount of $540,000 each January 1, beginning on January 1, 2024.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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On January 1, 2024, Onyeocha Climbing Academy instituted a defined benefit pension plan for its employees.
The annual service cost for each year of 2024 and 2025 was $740,000. The interest rate used to determine
the projected benefit obligation is 12%. Both the actual and the expected return on plan assets are 10% for
both years. Onyeocha funded the plan in the amount of $540,000 each January 1, beginning on January 1,
2024.
What pension liability should Onyeocha report in its balance sheet for the year ended December 31, 2025?
$321,400
Explanation
PBO, January 1, 2024
Service cost
Interest cost
Gains/losses
Retiree payments
PBO, December 31, 2024
Service cost
Interest cost (12% × $740,000)
Gains/losses
Retiree payments
PBO, December 31, 2025
Net pension liability: $1,568,800 - $1,247,400 = $321,400
$0 Plan assets, Jan, 1, 2024
740,000 Funding
0 Return (10% × $540,000)
0
0
$ 740,000 Plan assets, December 31, 2024
$740,000 Funding
88,800 Return (10% × $1,134,000)
0
0
0
$540,000
54,000
$ 594,000
540,000
113,400
$ 1,568,800 Plan assets, December 31, 2025 $1,247,400
Transcribed Image Text:On January 1, 2024, Onyeocha Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2024 and 2025 was $740,000. The interest rate used to determine the projected benefit obligation is 12%. Both the actual and the expected return on plan assets are 10% for both years. Onyeocha funded the plan in the amount of $540,000 each January 1, beginning on January 1, 2024. What pension liability should Onyeocha report in its balance sheet for the year ended December 31, 2025? $321,400 Explanation PBO, January 1, 2024 Service cost Interest cost Gains/losses Retiree payments PBO, December 31, 2024 Service cost Interest cost (12% × $740,000) Gains/losses Retiree payments PBO, December 31, 2025 Net pension liability: $1,568,800 - $1,247,400 = $321,400 $0 Plan assets, Jan, 1, 2024 740,000 Funding 0 Return (10% × $540,000) 0 0 $ 740,000 Plan assets, December 31, 2024 $740,000 Funding 88,800 Return (10% × $1,134,000) 0 0 0 $540,000 54,000 $ 594,000 540,000 113,400 $ 1,568,800 Plan assets, December 31, 2025 $1,247,400
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