Question

Spath Company adopted a noncontributory defined benefit pension plan on January 1, 2019. Spath uses the benefit/years-of-service method, which results in the following information:

20192020 Service cost$300,000$450,000Amount funded240,000390,000Discount rate10% 10%Expected rate of return10% 10%
The actual rate of return is equal to the expected return, and the company has not made any payments to retirees.
As of December 31, 2020, what is the balance in the pension plan asset fund?

Answer 1

The balance in the pension plan asset fund as of December 31, 2020, is $429,000.

Step-by-step explanation:

To calculate the balance in the pension plan asset fund, we need to consider the service cost, the amount funded, and the actual rate of return. The balance in the pension plan asset fund is equal to the amount funded plus the return on investments. In this case, the amount funded in 2019 is $240,000, and in 2020 is $390,000. The actual rate of return is equal to the expected rate of return, which is 10%. So, the balance in the pension plan asset fund as of December 31, 2020, is $390,000 + ($390,000 x 10%) = $429,000.