Question

Information regarding the defined-pension plan of Amber Beverages included the following for 2016 ($ in millions):

Service cost...$490
Interest cost...$380
Actual & expected return on plan assets...$220
Amortization of net loss - AOCI...$30
Prior service cost - AOCI
Employer contributions to the pension plan (end of year)...$500

Amber should report pension expense for 2016 in the amount of:

A) $180 million
B) $650 million
C) $680 million
D) $870 million

Answer 1

Amber Beverages' pension expense for 2016 is calculated by summing the service cost, interest cost, subtracting the return on plan assets, and adding the amortization of net loss, which totals $680 million.

Step-by-step explanation:

To calculate the pension expense for Amber Beverages in 2016, we need to add and subtract the components provided in the question:

• Service Cost: $490 million
• Interest Cost: $380 million
• Actual & Expected Return on Plan Assets: -$220 million (this is subtracted because it reduces the expense)
• Amortization of Net Loss - AOCI: $30 million
• Prior Service Cost - AOCI: This is not explicitly given in the question, so we will assume it is either included in the Service Cost or not relevant for the 2016 expense calculation.

The sum of these amounts is the total pension expense:

$490 million (Service Cost) + $380 million (Interest Cost) - $220 million (Return on Assets) + $30 million (Amortization of Net Loss) = $680 million

Therefore, Amber should report a pension expense for 2016 for $680 million.