Question

postretirement health care benefit plan. On January 1 of the current calendar year, the following plan-related data were available. Net loss-postretirement benefit plan $ 222,000 Accumulated postretirement benefit obligation $ 2,100,000 Fair value of plan assets $ 440,000 Average remaining service period to retirement 12 years Average remaining service period to full eligibility 10 years The rate of return on plan assets during the year was 12%. The expected return was 10%. The actuary revised assumptions regarding the APBO at the end of the year, resulting in a $32,000 increase in the estimate of the obligation. Required: 1. Calculate any amortization of net loss that should be included as a component of postretirement benefit expense for the current year. 2. Determine the net loss or gain as of December 31 of the current year.

Answer 1

1. Amortization of net loss = $1000

2. Ending Net Loss: $244,200

Step-by-step explanation:

Data Given:

Net Loss Post Retirement Benefit Plan = $222,000

Accumulated Port Retirement Benefit Obligation = $2,100,000

Fair value of Plan Assets = $440,000

Average Remaining Service period to Retirement = 12 years

Average Remaining Service period to full eligibility = 10 years

Rate of Return on Plan Assets during the year = 12%

Expected Return = 10%

Estimate in the obligation = $32,000

Required:

1. Amortization of net loss

Solution:

For Amortization of net loss, we need to have the value of excess at the beginning of the year and average remaining service years.

So,

Net loss = $222,000

And

Accumulated Port Retirement Benefit Obligation = $2,100,000

Expected Return = 10%

So,

Find 10% of the Accumulated Port Retirement Benefit Obligation

$2,100,000 x 10% = $210,000

Now, for excess at the beginning of the year:

$222,000 - $210,000

excess at the beginning of the year = $12,000

And we know that,

Average Remaining Service period to Retirement = 12 years

Amortization of net loss = $12,000/12 years

Amortization of net loss = $1000

2. Net loss or gain at the end of the year.

Solution:

We know the beginning net loss = $222,000

Estimate in the obligation = $32,000

Now, we need to find the excess actual return over expected return:

Amortization of net loss = $1000

Fair value of Plan Assets = $440,000

Rate of Return on Plan Assets during the year = 12%

Expected Return = 10%

excess actual return over expected return: $440,000 x (12% - 10%)

excess actual return over expected return: $440,000 x (2%)

excess actual return over expected return: $8,800

Now,

For the Ending Net Loss:

(beginning net loss + Estimate in the obligation - excess actual return over expected return - Amortization of net loss)

$222,000 + $32,000 -$8,800 - $1000 = $244,200

Ending Net Loss: $244,200