question archive Reagan Western Wear, Inc
Reagan Western Wear, Inc
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Reagan Western Wear, Inc. has a defined benefit pension plan covering its 120 employees. In- formation relating to the plan follows:
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Fair value of plan assets, Jan. 1, 2005 ................ |
$3,400,000 |
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Fair value of plan assets, Dec. 31, 2005 ............... |
3,720,000 |
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Market-related value of plan assets, Jan. 1, 2005 ...... |
2,760,000 |
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Market-related value of plan assets, Dec. 31, 2005 ..... |
2,840,000 |
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Benefits paid to retirees during 2005 .................. |
168,000 |
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Contributions to pension fund during 2005 .............. |
120,000 |
Reagan expects a 10 percent return on its pension fund assets. Compute the difference between the actual return and the expected return and explain how this amount affects net periodic pension cost for 2005.
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ANS: |
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Increase in fair value of plan assets |
$320,000 |
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($3,720,000 - $3,400,000) ............................. |
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Benefits paid during 2005 .............................. |
168,000 |
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Contributions made during 2005 ......................... |
(120,000) |
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Actual return on plan assets ........................... |
$368,000 |
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Less expected return on plan assets ($2,760,000 ? 10%) . |
276,000 |
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Difference between actual and expected return .......... |
$ 92,000 |
The $92,000 represents a deferred gain that is added to the other components in computing net periodic pension cost for 2005. In effect the addition of this amount adjusts the actual return to the expected return.
