Fredcos defined benefit pension plan had a PBO of $10,000,000 at the beginning of the year. This
Question:
Fredco’s defined benefit pension plan had a PBO of $10,000,000 at the beginning of the year. This was based on a 10% discount rate (obligation discount rate). The fair value of pension plan assets at the beginning of the year was $10,400,000. These assets were expected to earn a long-term rate of return on the fair value of 8%. During the year, service cost was $750,000. At the beginning of the year, prior service cost was $25,000; this entire remaining amount will be amortized this period. There was no deferred net pension gain (loss) at the beginning of the year. The actual return on pension plan assets for the year was $900,000. The ABO was $9,500,000 at the beginning of the year. Compute Fredco’s net periodic pension expense for the year.
Discount Rate Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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