Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. problem 17-6 determine the pbo; plan assets; pensi

Problem 17-6 Determine the PBO; plan assets; pension expense; two years [LO17-3, 17-4, 17-6] Stanley-Morgan Industries adopted...

Free

90.2K

Verified Solution

Question

Accounting

Problem 17-6 Determine the PBO; plan assets; pension expense;two years [LO17-3, 17-4, 17-6]

Stanley-Morgan Industries adopted a defined benefit pension planon April 12, 2018. The provisions of the plan were not maderetroactive to prior years. A local bank, engaged as trustee forthe plan assets, expects plan assets to earn a 10% rate of return.The actual return was also 10% in 2018 and 2019.* A consultingfirm, engaged as actuary, recommends 4% as the appropriate discountrate. The service cost is $150,000 for 2018 and $280,000 for 2019.Year-end funding is $160,000 for 2018 and $170,000 for 2019. Noassumptions or estimates were revised during 2018.

*We assume the estimated return was based on the actual return onsimilar investments at the inception of the plan and that, sincethe estimate didn’t change, that also was the actual rate in2019.

Required:

Calculate each of the following amounts as of both December 31,2018, and December 31, 2019: (Enter your answers inthousands (i.e., 200,000 should be entered as200).)

Answer & Explanation Solved by verified expert
4.2 Ratings (821 Votes)

Solution:

December 31, 2018 December 31, 2019
1. Projected Benefit Obligation $150,000 $436,000
2. Plan assets $160,000 $346,000
3. Pension expense $150,000 $420,000

Explanation:

Projected Benefit Obligation
Details Amount($)
Balance, January 1, 2018 $0
Service cost $150,000
Interest cost (4% × $0) $0
Benefits paid ($0)
Balance, December 31, 2018 $150,000
Service cost $280,000
Interest cost (4% × $150,000) $6,000
Benefits paid ($0)
Balance, December 31, 2019 $436,000

.

Plan assets
Details Amount($)
Balance, January 1, 2018 $0
Actual return on plan assets (10% × $0) $0
Contributions, 2018 $160,000
Benefits paid    ($0)
Balance, December 31, 2018 $160,000
Actual return on plan assets (10% × $160,000) $16,000
Contributions, 2019 $170,000
Benefits paid ($0)
Balance, December 31, 2019 $346,000

.

Pension expense
Details Amount($)
Service cost $150,000
Interest cost (4% × $0) $0
Expected return on the plan assets (10% × $0) $0
Pension expense $150,000
Service cost $280,000
Interest cost (4% × $150,000) $6,000
Expected return on the plan assets (10% ×$160,000) ($16,000)
Pension expense $420,000

  
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Biology
1.2K views

Describe & diagram a basic bacteriophage reproductive cycle. How does this compare to infection by animal...

Physics
1.2K views

Q10. Assume that the Earth is orbiting the sun in a perfectly circular orbit. If the...

Basic Math
1.2K views

1 Identify the color of each of the following aspects of the figure a The...

Calculus
1.2K views

felle a This can be transformed into a basic integral by letting Consider the indefinite...

Calculus
1.2K views

Ajar contains 18 differently coloured balls If you remove two balls one at a time...

Accounting
1.2K views

Question 51 of 75. Emma's basis for depreciation is $170,000 ...

Accounting
1.2K views

Swift Oil Company is considering investing in a new oil well. It is expected that...

Accounting
1.2K views

At Sheridan Electronics, it costs $30 per unit ( $16 variable and $14 fixed) to...

Accounting
1.2K views

Explain the auditors ethical responsibilities with regard to client confidentiality and when they have a...

Accounting
1.2K views

Cash/Sales Discounts Example: 1. Ballou Inc. made credit sales of $25,000 with terms 1/10, n/30....

Accounting
1.2K views

Budgeting can be an important management tool if implemented properly. Identify several positive results when...

Finance
1.2K views

Required: The risk-free rate of return is \5, the required rate of return on the...