Jamieson Corp.sponsors a defined benefit plan for its employee group. The following data pertains to the plan's first 2 years in existence: Jamieson's pension expense as per ASPE for Year 2 would be:
A) $9,976.
B) $5,338.
C) $700.
D) $4,638.

Question

Jamieson Corp.sponsors a defined benefit plan for its employee group. The following data pertains to the plan's first 2 years in existence:  Jamieson's pension expense as per ASPE for Year 2 would be:
A) $9,976. 
B) $5,338. 
C) $700. 
D) $4,638.

Quizplus · Accepted Answer

The pension expense as per ASPE is determined using the following formula:

Pension Expense = Current Service Cost + Interest Cost - Expected Return on Plan Assets +/- Actuarial (Gains)/Losses - Amortization of Past Service Costs

Using the data given in the question:

Current Service Cost = $7,500
Interest Cost = ($78,800 x 6%) = $4,728
Expected Return on Plan Assets = ($80,000 x 7%) = $5,600
Actuarial Loss = ($80,000 - $78,000) = $2,000
Amortization of past service cost = $0 (since it is the first 2 years of the plan)

Therefore,

Pension Expense = $7,500 + $4,728 - $5,600 - $2,000 = $5,338

Hence, the correct choice is B.