Assume the same facts for ABC Corporation as in P14-5 with the following exceptions:
• Assume both that ABC fully funds the estimated PBO on January 1, 2014, and that invested funds earn an actual return of 12% in 2014.
• Suppose that in addition to funding the estimated PBO on January 1, 2014, ABC follows a policy of contributing to the pension fund (at the end of each year) an amount equal to the estimated pension expense less the prior service cost component, which was prefunded. On January 1, 2015, the discount rate drops from 10% to 9% while the expected return on plan assets remains at 10% for 2015.

1. How much pension expense should ABC recognize in 2014? Show the components of pension expense. Explain how this differs from your answer in requirement 3 of P14-5.
2. Compute the pension expense and amount funded in 2015. (Assume that the actual return on plan assets was 10% in 2015.) Compare the funded status of the plans at the end of 2015 and 2014. Explain the change.

  • CreatedSeptember 10, 2014
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