Question

Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2016, Lacy received the following information:Projected Benefit Obligation ($ in millions) Balance, January 1 $ 360 Service cost 60 Prior service cost 12 Interest cost(7.5%) 27 Benefits paid (37 ) Balance, December 31 $ 422 Plan Assets ($ in millions) Balance, January 1 $ 240 Actual return on plan assets 27 Contributions 2016 60 Benefits paid (37 ) Balance, December 31 $ 290 The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January 1, 2016. At the end of 2016, Lacy amended the pension formula creating a prior service cost of $12 million.Required:1. Determine Lacy's pension expense for 2016.Pension Expense :

Answer 1

$63

Step-by-step explanation:

Lacy's pension expense for 2016:

= Service cost + Interest cost - Expected return on the plan assets + Amortization of prior service cost + Amortization of net gain or net loss—AOCI

= $60 + $27 - ($27 actual - $3 gain) + $0 + $0

= $60 + $27 - $24

= $63

Note:

Since the amendment was at the end of the year, there is no amortization of prior service cost in 2016.