
Concept explainers
1.
Pension expense: Pension expense is an expense to the employer paid as compensation after the completion of services performed by the employees.
Pension expense includes the following components:
- Service cost
- Interest cost
- Expected return on plan assets
- Amortization of prior service cost
- Amortization of net loss or net gain
To Calculate: The Company’s prior service cost at the beginning of 2019 with respect to D after amendment.
1.

Explanation of Solution
Calculate Company’s prior service cost.
Working Notes:
Calculate projected benefit obligation without amendment.
Compute the amount of annual retirement payment of D.
Compute the lump-sum retirement amount.
The lump-sum amount of the retirement represents the present value of the annual retirement benefit of $57,600 (1).
The present value of an ordinary annuity of $1, at the rate of 7% for 18 years is 10.05909 (Refer to Table 4 in Appendix).
Compute the amount of PBO.
The PBO is the present value of the retirement benefit.
The present value of $1 at the rate of 7% for 20
Calculate projected benefit obligation with amendment.
Compute the amount of annual retirement payment of D.
Compute the lump-sum retirement amount.
The lump-sum amount of the retirement represents the present value of the annual retirement benefit of $63,000 (4).
The present value of an ordinary annuity of $1, at the rate of 7% for 18 years is 10.05909 (Refer to Table 4 in Appendix).
Compute the amount of PBO.
The PBO is the present value of the retirement benefit.
The present value of $1 at the rate of 7% for 20
Therefore, Company’s prior service cost at the beginning of 2019 with respect to D is $14,037.
2.
To Calculate: The amount of prior service cost amortization that would be included in pension expense.
2.

Explanation of Solution
Calculate the amount of prior service cost amortization.
Therefore, the amount of prior service cost amortization that would be included in pension expense is $702.
3.
To Calculate: The service cost for 2019 with respect to D.
3.

Explanation of Solution
Compute the amount of service cost for 2019.
The service cost is the present value of the service benefit.
The present value of $1 at the rate of 7% for 19 periods is 0.27651 (Refer to Table 4 in Appendix).
Working Notes:
Compute the amount of annual service benefit of D.
Compute the lump-sum service benefit.
The lump-sum amount of the service benefit represents the present value of the service benefit of 2019 of $4,200 (7).
The present value of an ordinary annuity of $1, at the rate of 7% for 18 years is 10.05909 (Refer to Table 4 in Appendix).
Therefore, the service cost for 2019 with respect to D is $11,682.
4.
To Calculate: The interest cost for 2019 with respect to D.
4.

Explanation of Solution
Calculate the interest cost for 2019.
Therefore, the interest cost for 2019 with respect to D is $11,464.
5.
To Calculate: The pension expense for 2019 with respect to D.
5.

Explanation of Solution
The following table shows the pension expense for 2019.
Particulars | Amount ($) |
Service cost | 11,682 |
Interest cost | 11,464 |
Expected return on the plan assets | (15,000) (9) |
Amortization of prior service cost | 702 |
Pension expense | 8,848 |
Table (1)
Working Note:
Compute expected return on plan assets.
Therefore, the pension expense for 2019 with respect to D is $15,000.
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Chapter 17 Solutions
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