Question

Harvey Hotels has provided a defined benefit pension plan for its employees for several years. At the end of the most recent year, the following information was available with regard to the plan: service cost: $6.2 million, expected return on plan assets: $1.2 million, actual return on plan assets: $1 million, interest cost: $1.4 million, payments to retired employees: $2 million, and amortization of prior service cost (created when the pension plan was amended causing a drop in the projected benefit obligation): $1.1 million. What amount should Harvey Hotels report as pension expense in its income statement for the year?

Answer 1

Answer ; Pension Expenses : $7.5million

Step-by-step explanation:

Calculation of amount that Harvey Hotels report as pension expense in its income statement for the year -

Particulars Explanation Amount

Service cost Given in the question $6.2 million

Add: Interest cost Given in the question $1.4 million

Less: Expected return on plan assets Given in the question $1.2 million

Add: Amortization of prior service cost Given in the question $1.1 million

Pension Expense ($6.2+$1.4-$1.2+$1.1)million $7.5 million

Hence, option - (B) is Correct.