Question

Panther Products sponsors a defined-benefit pension plan. The following information pertains to that plan:

Service cost for 2016...$480 million
Actual & expected return on plan assets for 2016...$105 million
2016 amortization of prior service cost...$15 million
Interest on pension obligation for 2016...$150 million
Retiree benefits paid during 2016...$30 million

The pension expense that Panther should report in its 2016 income statement is:

A) $510 million
B) $540 million
C) $630 million
D) $750 million

Answer 1

To calculate the pension expense for Panther Products for the year 2016, one must add up the service cost, interest on pension obligation, and amortization of prior service cost, then subtract the expected return on plan assets. Upon applying these operations to the given values, the pension expense sums up to $540 million. Thus, the pension expense Panther should report is $540 million.

Step-by-step explanation:

To calculate the pension expense for Panther Products in its 2016 income statement, we need to sum up the components that contribute to this expense. The formula for pension expense is typically:

• Service Cost
• Plus Interest on Pension Obligation
• Less Actual & Expected Return on Plan Assets
• Plus Amortization of Prior Service Cost

Using the provided information:

• Service Cost for 2016: $480 million
• Interest on Pension Obligation for 2016: $150 million
• Actual & Expected Return on Plan Assets for 2016: $105 million
• 2016 Amortization of Prior Service Cost: $15 million

Now, calculate the pension expense:

Pension Expense = Service Cost + Interest on Pension Obligation - Actual & Expected Return on Plan Assets + Amortization of Prior Service Cost

Pension Expense = $480 million + $150 million - $105 million + $15 million

Pension Expense = $540 million

Therefore, the correct answer is B) $540 million.