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Chapter 20: Question 1BE (page 1162)

AMR Corporation (parent company of American Airlines) reported the following (in millions). Service cost $366 Interest on P.B.O. 737 Return on plan assets 593 Amortization of prior service cost 13 Amortization of net loss 154 Compute AMR Corporation鈥檚 pension expense.

Short Answer

Expert verified

Pension Expense is the type of expense an organization bears for its employees eligible for receiving a pension amount from the organization. Its amount strictly depends upon the pension plan taken.

Step by step solution

01

Given are the following amounts:

Particulars

Amount (in millions)

Service cost

$366

Interest cost on projected benefit obligation

$737

Amortization of net loss

$154

Return on plan assets

$593

Prior service cost amortization

$13

02

Calculation of Pension Expense of AMR Corporation. 

Particulars

Amount (in millions)

Service cost

$366

Add: Interest cot on PBO

$737

Less: Return on the plan assets

$593

Add: Prior service cost amortization

$13

Add: Amortization of net loss

$154

Pension Expense

$677

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Most popular questions from this chapter

Explain how cash-basis accounting for pension plans differs from accrual-basis accounting for pension plans. Why is cash-basis accounting generally considered unacceptable for pension plan accounting?

Gingrich Importers provides the following pension plan information. Fair value of pension plan assets, January 1, 2017 $2,400,000 Fair value of pension plan assets, December 31, 2017 2,725,000 Contributions to the plan in 2017 280,000 Benefits paid retirees in 2017 350,000 Instructions From the data above, compute the actual return on the plan assets for 2017

Hanson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances related to this plan. Plan assets (market-related value) \(520,000 Projected benefi t obligation 700,000 Pension asset/liability 180,000 Cr. Prior service cost 81,000 Net gain or loss (debit) 91,000 As a result of the operation of the plan during 2017, the actuary provided the following additional data for 2017. Service cost \)108,000 Settlement rate, 9%; expected return rate, 10% Actual return on plan assets 48,000 Amortization of prior service cost 25,000 Contributions 133,000 Benefits paid retirees 85,000 Average remaining service life of active employees 10 years

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Identify the five components that comprise pension expense. Briefly explain the nature of each component.
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