Question

The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Incurred during the Year (Gain) or Loss 2017 \(300,000 2018 480,000 2019 (210,000) 2020 (290,000) Other information about the company’s pension obligation and plan assets is as follows. Projected Benefit Plan Assets As of January 1, Obligation (market-related asset value) 2017 \)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 “corridor” approach in determining the amount to be amortized each year.

Short answer

Theaverage remaining service life per employee is used when an organization calculates an estimated value ofthe number of years leftfor an employeeuntil their retirementto ascertain theirpension expense.

Step-by-step solution

Computation of average remaining service life per employee.

$$\begin{gathered} \mathbf{Average}\mathbf{}\mathbf{remanining}\mathbf{}\mathbf{service}\mathbf{}\mathbf{life}\mathbf{}\mathbf{per}\mathbf{}\mathbf{employee}\mathbf{=}\frac{\mathbf{Expected}\mathbf{}\mathbf{future}\mathbf{}\mathbf{years}\mathbf{}\mathbf{of}\mathbf{}\mathbf{service}}{\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{employees}} \\ \mathbf{=}\frac{\mathbf{5}\mathbf{,}\mathbf{600}}{\mathbf{400}} \\ \mathbf{=}\mathbf{14}\mathbf{years} \end{gathered}$$

Calculation of minimum amortization of gain or loss for the years 2019 and 2020 along with the accumulated OCI for the year 2020.

$$\begin{gathered} \mathbf{Minimum}\mathbf{}\mathbf{amortization}\mathbf{}\mathbf{of}\mathbf{}\mathbf{Gain}\mathbf{/}{\mathbf{Loss}}_{\mathbf{2019}}\mathbf{=}\frac{\mathbf{Accumulated}\mathbf{}{\mathbf{OCI}}_{\mathbf{2019}}\mathbf{-}\left(\mathbf{Projected}\mathbf{}\mathbf{}\mathbf{benefit}\mathbf{}\mathbf{}{\mathbf{obligation}}_{\mathbf{2019}}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{100}}\right)}{\mathbf{Average}\mathbf{}\mathbf{}\mathbf{remaining}\mathbf{}\mathbf{}\mathbf{service}\mathbf{}\mathbf{}\mathbf{life}\mathbf{}\mathbf{}\mathbf{per}\mathbf{}\mathbf{}\mathbf{employee}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{780}\mathbf{,}\mathbf{000}\mathbf{-}\left(\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{100}}\right)}{\mathbf{14}\mathbf{years}} \\ \mathbf{=}\mathbf{\$}\mathbf{20}\mathbf{,}\mathbf{000} \\ \mathbf{Accumulated}\mathbf{}{\mathbf{OCI}}_{\mathbf{2020}}\mathbf{=}\mathbf{Accumulated}\mathbf{}{\mathbf{OCI}}_{\mathbf{2019}}\mathbf{-}\mathbf{Minimum}\mathbf{}\mathbf{}\mathbf{amortization}\mathbf{}\mathbf{of}\mathbf{}\mathbf{}\mathbf{Gain}\mathbf{/}{\mathbf{Loss}}_{\mathbf{2019}}\mathbf{-}\mathbf{Gain}\mathbf{}\mathbf{or}\mathbf{}{\mathbf{loss}}_{\mathbf{2019}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{780}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{210}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{550}\mathbf{,}\mathbf{000} \\ \mathbf{Minimum}\mathbf{}\mathbf{amortization}\mathbf{}\mathbf{of}\mathbf{}\mathbf{Gain}\mathbf{/}{\mathbf{Loss}}_{\mathbf{2020}}\mathbf{=}\frac{\mathbf{Accumulated}\mathbf{}{\mathbf{OCI}}_{\mathbf{2020}}\mathbf{-}\mathbf{(}\mathbf{Projected}\mathbf{}\mathbf{benefit}\mathbf{}{\mathbf{obligation}}_{\mathbf{2020}}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{100}}\mathbf{)}}{\mathbf{Average}\mathbf{}\mathbf{remaining}\mathbf{}\mathbf{service}\mathbf{}\mathbf{life}\mathbf{}\mathbf{per}\mathbf{}\mathbf{employee}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{550}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{(}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{240}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{100}}\mathbf{)}}{\mathbf{14}\mathbf{years}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{9}\mathbf{,}\mathbf{000} \end{gathered}$$

Schedule showing the minimum profit/loss amortized

Particulars	2017	2018	2019	2020
Projected benefit obligation	$4,000,000	$4,520,000	$5,000,000	$4,240,000
Plan Assets	$2,400,000	$2,200,000	$2,600,000	$3,040,000
Corridor (10% of PBO)	$400,000	$452,000	$500,000	$424,000
Accumulated OCI (Gain/Loss)	0	$300,000	$780,000	$550,000
Minimum amortization of gain/loss	0	0	$20,000	$9,000