Daikon Ltd. received the following information from its pension plan trustee concerning their defined benefit pension plan for calendar 2020. The corporation uses ASPE. $\begin{array}{lrrr}
&& \underline{\operatorname{Ian} 1,2020} & \underline{\text { Dec 31,2020 }} \
\text { Fair value of plan assets } && \$ 2,100,000 & \$ 2,250,000 \
\text { Accrued benefit obligation } && 2,400,000 & 2,580,000
\end{array}$ For 2020, the current service cost is $ 180,000. The interest rate on the liability is 10% and the actual rate of return on plan assets is 9%. The pension expense to be reported for 2020 is

Question

Daikon Ltd. received the following information from its pension plan trustee concerning their defined benefit pension plan for calendar 2020. The corporation uses ASPE. $\begin{array}{lrrr} 
&& \underline{\operatorname{Ian} 1,2020} & \underline{\text { Dec 31,2020 }} \
\text { Fair value of plan assets } && \$ 2,100,000 & \$ 2,250,000 \
\text { Accrued benefit obligation } && 2,400,000 & 2,580,000
\end{array}$ For 2020, the current service cost is $ 180,000. The interest rate on the liability is 10% and the actual rate of return on plan assets is 9%. The pension expense to be reported for 2020 is

Quizplus · Accepted Answer

The pension expense consists of:
1. Current service cost = $ 180,000
2. Interest cost = beginning of year PBO x discount rate = beginning of year PBO x 10% = $2,200,000 x 10% = $220,000
3. Actual return on plan assets = beginning of year plan assets x actual rate of return = $2,000,000 x 9% = $180,000
4. Amortization of prior service cost = unrecognized prior service cost / remaining service life = $0 / 10 = $0
5. Amortization of actuarial loss = unrecognized actuarial loss / average remaining service life = $0 / 10 = $0
Therefore, the total pension expense to be reported for 2020 is $180,000 + $220,000 + $180,000 + $0 + $0 = $580,000. However, since current service cost is already included in the total pension expense, the net pension expense to be reported for 2020 is $580,000 - $180,000 = $400,000. The answer choice closest to this amount is B, so B is the correct answer.

Daikon Ltd For 2020, the Current Service Cost Is $ 180,000