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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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Several years ago, Lewad Company established a defined benefit pension plan for its employees. The following information is available for 2019 in regard to its pension plan: (1) discount rate, 10%; (2) service cost, $142, 000; (3) plan assets (1/1), $659, 000; and (4) expected return on plan assets, $65, 900. There is no amortization of prior service cost, and there is no gain or loss. On December 31, 2019, Lewad contributed $143, 000 to the pension plan, resulting in a credit to Accrued/Prepaid Pension Cost of $8, 200.

Required:

  1. 1. Compute the amount of Lewad’s projected benefit obligation on January 1, 2019.
  2. 2. Next Level How would a decrease in the discount rate affect Lewad’s pension expense?

1.

To determine

Calculate the amount of projected benefit obligation of Company L for 2019.

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 amount of projected benefit obligation of Company L for 2019 as follows:

Interest cost = Projected benefit obligation×Discount rate$75,100(2)=Projected benefit obligation×10100Projected benefit obligation = $75,0000.10Projected benefit obligation =$751,000

Working note (1):

Calculate the pension expense for 2019

2.

To determine

Explain the manner in which a decrease in the discount rate would affect pension expense of Company L.

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