Question

At December 31, 20x8, Fox Company has the following pension plan information:Fair value of plan assets, beginning of year $1,100,000Fair value of plan assets, ending of year 1,135,000Contributions 275,000Benefits paid 340,000Expected rate of return on plan assets 7%The expected return on plan assets was used to calculate net periodic pension cost. No actuarial gains or losses were incurred during 20x8. Fox's effective tax rate is 30%. What is the net gain to be reported in 20x8 other comprehensive income?a. $16,100 b. $0c. $77,000d. $23,000

Answer 1

Option (a) $16,100

Step-by-step explanation:

Data provided in the question:

Fair value of plan assets, beginning of year = $1,100,000

Fair value of plan assets, ending of year = $1,135,000

Contributions = $275,000

Benefits paid = 340,000

Expected rate of return on plan assets = 7%

Fox's effective tax rate = 30%

Now,

Expected return on plan assets

= Beginning fair value of plan assets × Expected rate of return

= $1,100,000 × 7%

= $77,000

Actual return on plan assets

= Beginning fair value of plan assets + Contributions - Benefits paid + + Actual return on plan assets

= $1,100,000 + $275,000 - $340,000 + 100,000

= $1,135,000

Thus,

Before tax gain

= Actual return on plan assets - Expected return on plan assets

= $100,000 - $77,000

= $23,000

Therefore,

Net gain to be reported in 20x8 other comprehensive income on an after-tax basis will be

= $23,000 × (1- 30%)

= $16,100

Hence,

Option (a) $16,100