Question

Blossom Company provides the following information about its defined benefit pension plan for the year 2025.

Service cost $88,500
Contribution to the plan 107,100
Prior service cost amortization 10,600
Actual and expected return on plan assets 63,100
Benefits paid 40,800
Plan assets at January 1, 2025 648,000
Projected benefit obligation at January 1, 2025 688,100
Accumulated OCI (PSC) at January 1, 2025 148,600
Interest/discount (settlement) rate 11%

Compute the pension expense for the year 2025.

Answer 1

The pension expense for Blossom Company for the year 2025 is calculated by summing the Service Cost, Interest Cost, and Prior Service Cost Amortization, then subtracting the Actual and Expected Return on Plan Assets, resulting in a total expense of $111,691.

Step-by-step explanation:

The pension expense for the year 2025 can be calculated using the following components.

Interest cost is calculated by multiplying the Projected Benefit Obligation at the beginning of the year by the settlement rate (11% of $688,100), which gives us $75,691.

Therefore, the pension expense for the year 2025 is the sum of the Service Cost, Interest Cost, and Prior Service Cost Amortization, minus the Actual and Expected Return on Plan Assets:

$88,500 (Service Cost) + $75,691 (Interest Cost) + $10,600 (Prior Service Cost Amortization) - $63,100 (Actual and Expected Return) = $111,691

This calculation assumes a plagiarism free and direct answer approach that penalizes firms for underfunding their pension plans while providing employees with more information about their pension accounts.