Records for the Carp Corporation's defined-benefit pension plan show a net unrecognized loss at December 31, 2010, of $30,000, after recording the pension expense for 2010. The average expected service period of the company's employees is 10 years. The actuary notifies Carp's management that an actuarial gain of $4,000 is determined at January 1, 2011. Actual return for 2011 is $2,000, and expected return is $3,000. The following information also is available for the 2011:

The minimum amortization of unrecognized loss increases 2011 pension expense by what amount?

Question

Records for the Carp Corporation's defined-benefit pension plan show a net unrecognized loss at December 31, 2010, of $30,000, after recording the pension expense for 2010. The average expected service period of the company's employees is 10 years. The actuary notifies Carp's management that an actuarial gain of $4,000 is determined at January 1, 2011. Actual return for 2011 is $2,000, and expected return is $3,000. The following information also is available for the 2011:

The minimum amortization of unrecognized loss increases 2011 pension expense by what amount?

Quizplus · Accepted Answer

The minimum amortization of unrecognized loss to be included in pension expense is the greater of (1) the straight-line amortization over the remaining service period or (2) the 10% corridor amount, which for Carp is $3,600 ($36,000 x 10%).

Since the actual return of $2,000 is less than the expected return of $3,000, there is a loss of $1,000 that will increase the unrecognized loss balance at December 31, 2011, to $31,000 ($30,000 + $1,000).

The corridor amount for 2011 is $3,600, which is greater than the $1,000 loss, so the minimum amortization of unrecognized loss to be included in 2011 pension expense is $1,000.

However, since the balance of unrecognized loss is greater than the corridor amount, the excess balance of $27,400 ($31,000 - $3,600) will have to be amortized over the remaining service period.

The minimum amortization of unrecognized loss for 2011 will be $2,100 ($1,000 + $27,400 ÷ 10 years).

Therefore, the correct answer is choice (C) $2,100.

Records for the Carp Corporation's Defined-Benefit Pension Plan Show a Net