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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Raspberry Company’s actuary has computed its prior service cost to be $8,000,000. Raspberry amortizes the prior service cost by the straight-line method over the remaining 20-year service life of its active employees. During the current year, Raspberry also recognizes service cost of $560,000 and interest cost of $100,000. At the beginning of the year, the plan assets were $1,500,000, and the company expects to earn 10% on its plan assets. Compute Raspberry’s pension expense for the current year.

To determine

Calculate the pension expense of Company R for the current year.

Explanation

Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.

Calculate the pension expense of Company R for the current year as follows:

ParticularsAmount in ($)
Service cost560,000
Add: Interest cost100,000
Less: Expected return on plan assets (1)(150,000)
Add: Amortization of prior service cost (2)400,000
    Pension expense$910,000

Table (1)

Working note (1):

Calculate the expected return on plant assets.

Expected return on plan asset = (The amount of plant asset ×

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