The following information is related to the pension plan of Cullumber, Inc. for 2018. Actual return on plan assets $520000 Amortization of net gain 225000 Amortization of prior service cost due to increase in benefits 420000 Expected return on plan assets 568000 Interest on projected benefit obligation 845000 Service cost 2300000 Pension expense for 2018 is a. $2772000. b. $2868000. c. $3270000. d. $3222000.

Question

Steven Frank

Business

12 May, 00:15

The following information is related to the pension plan of Cullumber, Inc. for 2018. Actual return on plan assets $520000 Amortization of net gain 225000 Amortization of prior service cost due to increase in benefits 420000 Expected return on plan assets 568000 Interest on projected benefit obligation 845000 Service cost 2300000 Pension expense for 2018 is a. $2772000. b. $2868000. c. $3270000. d. $3222000.

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Frances Friedman · Answer 1

d.$3222000

Explanation:

This is the amount at which companies are liable to pay employees as benefits they get besides in addition to the employees salaries therefore pension expense is part of employee benefits so the formula to calculate pension expense is:

Pension expense = Current service cost + interest on projected benefit obligation cost - expected return on plan assets + amotization of past due service cost due to increase in benefits + amotization of net gain.

so we substitute the given values:

Pension expense=$2300000 + $845000 - $568000+$420000 + $225000

= $3222000 will be the pension expense so we do not include the actual return on plan assets because it adjusts the previous years expected return on plan assets (for 2017)