Question

The following information relates to Beck Co.'s defined benefit pension plan during Year 4:

Beginning funded status:$820,000liabilityContributions:395,000 Service cost:290,000 Interest cost:75,000 Expected return on plan assets:40,000 Prior service cost associated with Year 4 amendment:80,000 Amortization of net loss incurred in Year 3:5,000 Amortization of prior service cost from Year 2 plan amendments:10,000
What is Beck's ending underfunded status for its pension plan in Year 4?

Answer 1

Beck Co.'s ending underfunded status for its pension plan in Year 4 is $845,000. This was determined by beginning with the initial funded status liability and making adjustments for plan contributions, service and interest costs, expected return on plan assets, and amortizations of prior service costs and net loss.

Step-by-step explanation:

To calculate Beck Co.'s ending underfunded status of its pension plan in Year 4, we need to consider the changes to its funded status over the year. This includes the contributions made to the plan, the costs associated with the plan, and any other relevant adjustments such as the expected return on plan assets, prior service cost, and amortizations.

The calculation is as follows:

1. Begin with the starting funded status: $820,000 liability.
2. Subtract the contributions to the plan: $395,000.
3. Add the service cost: $290,000.
4. Add the interest cost: $75,000.
5. Subtract the expected return on plan assets: $40,000.
6. Add the prior service cost from the Year 4 amendment: $80,000.
7. Add the amortization of net loss from Year 3: $5,000.
8. Add the amortization of prior service cost from Year 2 plan amendments: $10,000.

Adjusting the funded status accordingly, we will have: $820,000 + $290,000 + $75,000 + $80,000 + $5,000 + $10,000 - $395,000 - $40,000 = $845,000 liability, which represents Beck's ending underfunded status for the pension plan in Year 4.