Question

The following information pertains to Havana Corporation's defined benefit pension plan:

($ in thousands) 2021
Beginning balances 2022
Beginning balances
Projected benefit obligation $ (7,500 ) $ (8,004 )
Plan assets 7,200 7,836
Prior service cost–AOCI 750 700
Net loss–AOCI $ 870 $ 950

At the end of 2021, Havana contributed $755 thousand to the pension fund and benefit payments of $744 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 7%. There were no changes in actuarial estimates and assumptions regarding the PBO.

What is the 2021 pension expense for Havana’s plan?
A. $735 thousand.
B. $593 thousand.
C. $688 thousand.
D. None of these are correct.

Answer 1

B

Step-by-step explanation:

From the information given:

Service Cost = PBO Ending + Retire benefits - interest cost - PBO beginning

Particulars Amounts($)

PBO Ending 8004.00

Add:

Retire Benefits 744.00

Less:

Interest Cost (7500 × 7%) 525.00

PBO beginning 7500.00

Service Cost 723.00

Assume that the actual return is y;

Then;

The plan assets ending bal. = beginning bal. + actual return + cash contributions - retire benefits

7836 = 7200 + y + 755 - 744

y = 7836 - 7200 - 755 + 744

y = $625

Actual return = $625

Plan assest loss = (7200 × 0.10) - 625

= $95

Thus; the pension expenses for year 2021 is as follows:

Particulars Amounts($)

Service Cost 723

Interest Cost 525

Less:

Expected return on plan

assets ($7836 - $7200) 720

Add:

Amortization of prior service

cost (525 × 0.10) 50

Add:

Net loss (95 -(950-870) 15

Pension expenses for 2021 593