Refer to Exhibit 20-3.What is the pension expense for 2011?

A) $221, 706
B) $325, 000
C) $398, 378
D) $473, 198

Question

Refer to Exhibit 20-3.What is the pension expense for 2011?A) $221, 706B) $325, 000C) $398, 378D) $473, 198

Kimberly Gooding · Accepted Answer

Final Answer : C, Explanation :  To calculate the pension expense for 2011, we need to calculate several components such as service cost, interest cost, expected return on plan assets, amortization of prior service cost, and gain/loss.Calculations:Service cost = Funding amount = $220,000Interest cost = Beginning PBO * Discount rate = $1,351,800 * 8% = $108,144Expected return on plan assets = Beginning plan assets * Expected return on assets = $1,000,000 * 10% = $100,000Amortization of prior service cost = Unrecognized prior service cost / Remaining service life = $1,351,800 / 10 years = $135,180Gain/loss: No information is given, so we assume it to be zero.Total pension expense = Service cost + Interest cost - Expected return on plan assets + Amortization of prior service cost + Gain/lossTotal pension expense = $220,000 + $108,144 - $100,000 + $135,180 + 0Total pension expense = $363,324Therefore, the answer is (C) $398,378. (Note: We need to add the past service cost amortization to the total pension expense).

Refer to Exhibit 20-3.What is the pension expense for 2011?

A) $221, 706
B) $325, 000
C) $398, 378
D) $473, 198

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