Smith, Inc. has a pension plan with the following data available for 2014 and 2015:
$\begin{array}{lcc}&2014&2015\
\text { Service cost } & \$ 30,000 & \$ 34,000 \
\text { Interest cost } & \$ 18,000 & \$ 20,000 \
\text { Actual return on plan assets } & \$ 15,000 & \$ 21,600 \
\text { Beginning of year plan assets } & \$ 200,000 & \$ 240,000 \
\text { Settlement rate } & 8 \% & 8 \% \
\text { Expected return on plan assets } & 8 \% & 8 \%
\end{array}$
-Smith's pension expense for 2015 is

Question

Quizplus · Accepted Answer

Pension expense is calculated as the sum of service cost, interest cost, and the actual return on plan assets (adjusted for any difference between expected and actual returns if necessary), among other components. For 2015, the calculation is as follows: Service cost ($34,000) + Interest cost ($20,000) - Actual return on plan assets ($21,600) = $32,400. However, since the expected return on plan assets is also 8% of the beginning year plan assets ($240,000 * 8% = $19,200), and the actual return is $21,600, the difference ($21,600 - $19,200 = $2,400) should be subtracted from the pension expense. Thus, the correct calculation is $32,400 + ($20,000 - $19,200) = $34,800.

Smith, Inc -Smith's Pension Expense for 2015 Is A)$32,400

Smith, Inc -Smith's Pension Expense for 2015 Is
A)$32,400