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Chapter 20: Question 7BE (page 1162)

Shin Corporation had a projected benefit obligation of \(3,100,000 and plan assets of \)3,300,000 at January 1, 2017. Shin also had a net actuarial loss of $465,000 in accumulated OCI at January 1, 2017. The average remaining service period of Shin鈥檚 employees is 7.5 years. Compute Shin鈥檚 minimum amortization of the actuarial loss.

Short Answer

Expert verified

Actuarial loss is a term used when an organization bears a specific decrease in projected benefit obligation. It is highly influenced and affected by the discount percentage used in ascertaining the plan鈥檚 future worth.

Step by step solution

01

Given the amounts:

Particulars

Amount

Projected benefit obligation

$3,100,000

Plan assets as on Jan 1, 2017

$3,300,000

Actuarial loss

$465,000

Average remaining service period

7.5 years

02

Computation of Shin’s minimum amortization of actuarial loss.

Particulars

Amount

Net loss in accumulated OCI

$465,000

Less: Corridor ($3,300,000脳10100)

$330,000

Excess

$135,000

Divide: Average remaining service life

7.5 years

Minimum amortization of the actuarial loss

$18,000

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Most popular questions from this chapter

Erickson Company sponsors a defined benefit pension plan. The corporation鈥檚 actuary provides the following information about the plan. January 1, December 31, 2017 2017 Vested benefit obligation \(1,500 \)1,900 Accumulated benefit obligation 1,900 2,730 Projected benefit obligation 2,500 3,300 Plan assets (fair value) 1,700 2,620 Settlement rate and expected rate of return 10% Pension asset/liability 800 ? Service cost for the year 2017 400 Contributions (funding in 2017) 700 Benefits paid in 2017 200 Instructions (a) Compute the actual return on the plan assets in 2017. (b) Compute the amount of the other comprehensive income (G/L) as of December 31, 2017. (Assume the January 1, 2017, balance was zero.) (c) Compute the amount of net gain or loss amortization for 2017 (corridor approach). (d) Compute pension expense for 2017.

The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Incurred during the Year (Gain) or Loss 2017 \(300,000 2018 480,000 2019 (210,000) 2020 (290,000) Other information about the company鈥檚 pension obligation and plan assets is as follows. Projected Benefit Plan Assets As of January 1, Obligation (market-related asset value) 2017 \)4,000,000 $2,400,000 2018 4,520,000 2,200,000 2019 5,000,000 2,600,000 2020 4,240,000 3,040,000 Gustafson Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total serviceyears for all participating employees is 5,600. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2017. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employee as the basis for amortization.

Instructions (Round to the nearest dollar.) Prepare a schedule which reflects the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2017, 2018, 2019, and 2020. Apply the 鈥渃orridor鈥� approach in determining the amount to be amortized each year.

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.

Campbell Soup Company reported pension expense of \(73 million and contributed \)71 million to the pension fund. Prepare Campbell Soup Company鈥檚 journal entry to record pension expense and funding, assuming Campbell has no OCI amounts

Using the information in E20-2, prepare a pension worksheet inserting January 1, 2017, balances, showing December 31, 2017, balances, and the journal entry recording pension expense.
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