Question

The following information relates to Marsh Inc., a U.S. corporation that uses the corridor approach for amortizing gains and losses.

Unrecognized gain:$250,000Pension benefit obligation:1,625,000Funded status: Overfunded by340,000Average remaining service life:20 years
The amortization amount for the current year will be:

Answer 1

The amortization amount for the current year will be $12,500.

Step-by-step explanation:

The amortization amount for the current year can be calculated using the corridor approach. The corridor is the greater of 10% of the higher of the pension benefit obligation (PBO) or the fair value of the plan assets. In this case, the corridor would be 10% of $1,625,000, which is $162,500.

The unrecognized gain, which is $250,000, is higher than the corridor. Therefore, the entire unrecognized gain will be amortized over the average remaining service life, which is 20 years.

The amortization amount for the current year would be $250,000 divided by 20, which equals $12,500.