Question

Linda Berstler Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan.

January 1, 2017 December 31, 2017

Defined benefit obligations \(2,500 \)3,300

Plan assets (fair value) 1,700 2,620

Discount rate 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 other comprehensive income (G/L) as of December 31, 2017. (Assume the January 1, 2017, balance was zero.)

Short answer

Answer

The actual return on the plan assets is$420.

The net pension liability loss for the company is$100.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Pension Plan

A pension plan refers to a scheme in which an employer promises a specified payment to its employees in the form of regular payments or alump-sum at the time of their retirement.

Computation of actual return on plan assets

Particulars	Amounts ($)
Closing balance of plan assets	2,620
Less: Fund available after benefit paid (Working note)	(2,200)
Actual return on plan assets	$420

Working note:

Computation of fund available after benefit paid:

Particulars	Amounts ($)
Opening balance of the plan assets	1,700
Add: Contribution	700
Total fund available	2,400
Less: Benefit paid	(200)
Fund available after benefit paid	2,200

Computation of other comprehensive income

Particulars	Amounts ($)
Closing projected benefit obligation	3,300
Add: Benefit	200
Less: Opening projected benefit obligation	(2,500)
Less: Interest cost on beginning projected obligation (2,500*10%)	(250)
Less: Service cost	(400)
Liability gain or loss (A)	350
Closing value of plan assets	2,620
Add: Benefits	200
Less: Opening value of plan assets	(1,700)
Less: Contribution	(700)
Less: Expected return on plan assets (1700*10%)	(170)
Unexpected return on plan assets (B)	250
Net pension liability loss (A-B)	(100)