Question

Hicks Cable Company has a defined benefit pension plan. Three alternative possibilities for pension-related data at January 1, 2024, are shown below:

($ in thousands)
Case 1 Case 2 Case 3
Net loss (gain)—AOCI, January 1 $ 340 $ (410) 281
2024 loss (gain) on plan assets (31) (28) 6
2024 loss (gain) on PBO (43) 36 (290)
Accumulated benefit obligation, January 1 (3,150) (2,750) (1,650)
Projected benefit obligation, January 1 (3,510) (2,870) (1,900)
Fair value of plan assets, January 1 3,000 2,900 1,750
Average remaining service period of active employees (years) 10 12 7
Required:

For each independent case, calculate any amortization of the net loss or gain that should be included as a component of pension expense for 2024.

For each independent case, determine the net loss—AOCI or net gain—AOCI as of January 1, 2025.

Answer 1

To calculate the amortization of net loss or gain and determine the net loss or gain in AOCI as of January 1, 2025, divide the initial net loss or gain by the average remaining service period and adjust for the year's gains or losses. Specific calculations were made for all three cases provided by the student, with the positive or negative outcome indicating a net loss or gain respectively.

Step-by-step explanation:

The student is asking how to calculate the amortization of the net loss or gain as a component of pension expense for Hicks Cable Company, and to determine the net loss or gain in accumulated other comprehensive income (AOCI) as of January 1, 2025, for three different cases. Below are the explanations and calculations for each independent case based on the provided pension-related data:

Case 1 Calculation

Amortization of net loss for 2024: ($340k / 10 years) + $31k + $43k = $75k

Net loss—AOCI on January 1, 2025: $340k - $75k = $265k

Case 2 Calculation

Amortization of net gain for 2024: (-$410k / 12 years) - $28k - $36k = -$66.5k

Net gain—AOCI on January 1, 2025: -$410k + $66.5k = -$343.5k

Case 3 Calculation

Amortization of net loss for 2024: ($281k / 7 years) - $6k + $290k = $335k

Net loss—AOCI on January 1, 2025: $281k - $335k = -$54k

Note: Positive values indicate a net loss, while negative values indicate a net gain for AOCI.

Answer 2

The requested calculations involve using the corridor approach to determine the amortization of net pension losses or gains and updating the AOCI balance for each independent case in a pension plan scenario.

Step-by-step explanation:

The question pertains to amortization of net loss or gain in a defined benefit pension plan. Amortization for each case can be calculated using the corridor approach, which requires recognizing the amortization if the net loss or gain exceeds a threshold (10% of the greater of the projected benefit obligation (PBO) or the fair value of plan assets). Any excess is divided by the average remaining service period to determine the amount to be amortized as part of pension expense. Additionally, the question asks to find out the net loss or gain in other comprehensive income (AOCI) as of January 1, 2025.

The calculations for each case would typically involve determining the corridor amount, calculating the excess loss or gain over this corridor, and then amortizing this excess over the average remaining service life of the employees.