Question

Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2024. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. The actual return was also 10% in 2024 and 2025. A consulting firm, engaged as actuary, recommends 5% as the appropriate discount rate. The service cost is $280,000 for 2024 and $370,000 for 2025 . Year-end funding is $290,000 for 2024 and $300,000 for 2025. No assumptions or estimates were revised during 2024 . "We assume the estimated return was based on the actual return on similar investments at the inception of the plan and that, since the estimate didn't change, that also was the actual rate in 2025. Required: Calculate each of the following amounts as of both December 31, 2024, and December 31, 2025: Note: Enter your answers in thousands (i.e., 200,000 should be entered as 200).

Answer 1

To calculate the amounts as of December 31, 2024, and December 31, 2025, we need to consider the service cost, actual return on plan assets, and the interest on the projected benefit obligation. The service cost reflects the increase in the PBO due to employee service in the current year. The actual return on plan assets is the increase in plan assets resulting from investment income earned during the year. The interest on the PBO is the increase in the PBO due to the passage of time.

Step-by-step explanation:

To calculate the amounts as of December 31, 2024, and December 31, 2025, we need to consider the service cost, actual return on plan assets, and the interest on the projected benefit obligation (PBO). The service cost reflects the increase in the PBO due to employee service in the current year. In this case, the service cost is $280,000 for 2024 and $370,000 for 2025. The actual return on plan assets is the increase in plan assets resulting from investment income earned during the year. It was 10% in both 2024 and 2025. The interest on the PBO is the increase in the PBO due to the passage of time. The interest rate recommended by the consulting firm is 5%.

After calculating these amounts, you will have the values for each component as of December 31, 2024, and December 31, 2025. Please provide the specific amounts and we can calculate the total for each year.