Question

Given the following items and amounts, compute the actual return on plan assets: fair value of plan assets at the beginning of the period \(9,500,000; benefits paid during the period \)1,400,000; contributions made during the period \(1,000,000; and fair value of the plan assets at the end of the period \)10,150,000.

Short answer

Actual return on plan assets denotes theperformance of assets defined under the organization's projected pension plan. It is used in a pension worksheet to determine the pension expense for a particular year.

Step-by-step solution

Computation of actual funding made

$\begin{array}{rcl}\mathbf{Actual}\mathbf{}\mathbf{funds}& \mathbf{=}& \mathbf{Contributions}\mathbf{}\mathbf{to}\mathbf{}\mathbf{plan}\mathbf{}\mathbf{during}\mathbf{}\mathbf{the}\mathbf{}\mathbf{period}\mathbf{-}\mathbf{Benefits}\mathbf{}\mathbf{paid}\mathbf{}\mathbf{during}\mathbf{}\mathbf{the}\mathbf{}\mathbf{period}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{400}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{-}\mathbf{\$}\mathbf{400}\mathbf{,}\mathbf{000}\end{array}$

Calculation of actual return on plan assets

$\begin{array}{rcl}\mathbf{Actual}\mathbf{}\mathbf{return}\mathbf{}\mathbf{on}\mathbf{}\mathbf{plan}\mathbf{}\mathbf{assets}& \mathbf{=}& \left(\mathrm{Fair}\mathrm{value}\mathrm{of}\mathrm{plan}\mathrm{asaet}\mathrm{at}\mathrm{the}\mathrm{end}-\mathrm{fair}\mathrm{value}\mathrm{of}\mathrm{plan}\mathrm{asset}\mathrm{at}\mathrm{the}\mathrm{beginning}\right)\mathbf{-}\mathbf{Actual}\mathbf{}\mathbf{funds}\\ & \mathbf{=}& \left(\$10,150,000-\$9,200,000\right)\mathbf{-}\left(-\$400,000\right)\\ & \mathbf{=}& \mathbf{\$}\mathbf{950}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{400}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{350}\mathbf{,}\mathbf{000}\\ & & \end{array}$