Question

At the beginning of the year, Klein Company's pension plan showed pension plan assets of $4 million and a PBO of $4.5 million; unamortized prior service cost of $500,000; and no unamortized gains or losses. During the year, service cost was $310,000; $400,000 was paid to retirees; and the company contributed $340,000 to the plan. The expected return on plan assets was 8% and the discount rate estimate was 6%. The plan assets earned an actual return of 5%. The average remaining service period is 10 years. At the end of the year, the balance of the pension plan assets will be____________________

Answer 1

The ending balance of the pension plan assets will be $3,190,000.

Step-by-step explanation:

To calculate the balance of the pension plan assets at the end of the year, we need to consider the various components involved. First, let's calculate the pension expense for the year:

Service cost: $310,000

Interest cost: Opening PBO x Discount rate = $4.5 million x 6% = $270,000

Expected return on plan assets: Opening plan assets x Expected return rate = $4 million x 8% = $320,000

Prior service cost amortization: $500,000 / Average remaining service period = $500,000 / 10 = $50,000

Net loss or gain: 0 (no unamortized gains or losses)

Therefore, the total pension expense for the year is $310,000 + $270,000 + $320,000 + $50,000 = $950,000.

To calculate the ending balance of the pension plan assets, we need to consider the following:

Beginning plan assets: $4 million

Actual return on plan assets: Opening plan assets x Actual return rate = $4 million x 5% = $200,000

Contributions to the plan: $340,000

Benefit payments to retirees: $400,000

Pension expense for the year: $950,000

Therefore, the ending balance of the pension plan assets will be:

Beginning plan assets + Actual return on plan assets + Contributions - Benefit payments - Pension expense

$4 million + $200,000 + $340,000 - $400,000 - $950,000 = $3,190,000

Answer 2

At the end of the year, the balance of the pension plan assets will be $4,140,000.

Step-by-step explanation:

4 million + actual return 200,000 + contribution to plan 340,000 - paid to retirees 400,000 = $4,140,000