Danielle Company adopted a defined benefit pension plan on January 1, 2010, and prior service credit was granted to employees.The present value of that prior service obligation as of January 1, 2010 was $1, 400, 000 and is being amortized by the straight-line method over the remaining 20-year service life of the company's active employees.Additional information relating to the company's pension plan for 2010 is presented below: $\begin{array}{ll}
\text { Annual service cost } & \$ 132,000 \
\text { Contribution to the plan (December } 31,2010) & 390,000 \
\text { Interest cost } & 10 \% \
\text { Expected (and actua) return on plan assets } & 12 \%
\end{array}$
What amount should be recorded in Prepaid/Accrued Pension Cost when recording the 2010 pension expense and funding at December 31, 2010?

Question

Danielle Company adopted a defined benefit pension plan on January 1, 2010, and prior service credit was granted to employees.The present value of that prior service obligation as of January 1, 2010 was $1, 400, 000 and is being amortized by the straight-line method over the remaining 20-year service life of the company's active employees.Additional information relating to the company's pension plan for 2010 is presented below: $\begin{array}{ll}
\text { Annual service cost } & \$ 132,000 \
\text { Contribution to the plan (December } 31,2010) & 390,000 \
\text { Interest cost } & 10 \% \
\text { Expected (and actua) return on plan assets } & 12 \%
\end{array}$
 What amount should be recorded in Prepaid/Accrued Pension Cost when recording the 2010 pension expense and funding at December 31, 2010?

Quizplus · Accepted Answer

The pension expense for 2010 is calculated as follows: Annual service cost ($132,000) + Interest on the obligation (10% of $1,400,000 = $140,000) + Amortization of prior service cost ($1,400,000 / 20 years = $70,000) - Expected return on plan assets (since no plan assets are mentioned, this is assumed to be $0), totaling $342,000. The contribution to the plan was $390,000. Therefore, the Prepaid/Accrued Pension Cost is the difference between the contribution and the pension expense: $390,000 - $342,000 = $48,000 credit.

Danielle Company Adopted a Defined Benefit Pension Plan on January