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Pension costs: retroactive credit for prior service

Two-hundred employees of a corporation are provided with a noncontributory defined benefit plan. What would a schedule for pension costs look like for 2011, taking the data below into consideration?

12/31/2010

Fair value of plan assets 1,347,500
Projected benefit obligation (1,587,500)
Unrecognized prior service cost 113,095
Unrecognized loss 163,750

12/31/2011

Fair value of plan assets 1,225,000
Projected benefit obligation (1,475,000)

Settlement rate and expected rate on plan assets 8% for 2010 and 2011.

Service cost 2011..........................125,000
company contributions 2011..........221,250

1/1/2010
Corporation made a plan amendment and granted retroactive credit for prior service rendered by employees prior to the amendmant. Amendment increased prior service cost by 125,000 on that date. Prior service cost is amortized by 10.5 years, the average remaining service life of the employees affected by the amendment.

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Please see the attachment for the tutorial. Click in cells to see ...

Solution Summary

Please see the attachment for the tutorial. Click in cells to see the computation. Contributions do not impact expenses and so are ignored. The posting includes some comments about why you use the expected rather than the actual return on assets in the expense computation.

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