Question

On June 1, 2018, West Corporation established a defined benefit pension plan for its employees. The...

On June 1, 2018, West Corporation established a defined benefit pension plan for its employees. The following information was available in 2020:

Balance Jan. 1, 2020

Projected Benefit Obligation. . . . . . . . . . . . . . $3,700,000 Cr.

Plan Assets. . . . . . . . . . . . . . . . . . . . . . . . . .   3,650,000 Dr.

Accumulated OCI—Pension Gain/Loss . . . . . .      650,000 Cr.

What would be the 2020 the amortization of Accumulated OCI—Pension Gain/Loss and change in pension expense, assuming that the company uses the corridor approach in determining the amortization to recognize. Assume that the average remaining service life of employees is 10 years.

A.

$27,550 increase to Pension Expense
B.

$27,550 decrease to Pension Expense
C.

$28,000 decrease to Pension Expense
D.

$28,000 increase to Pension Expense
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Answer #1
Amount $
Accumulated OCI—Pension Gain/Loss on Jan.1,2020 650,000
Less: 10% of higher of opening Projected Benefit Obligation or Plan assets 370,000 ( 3,700,000 x 10% )
Remaining Amount 280,000
/ average remaining service life of employees              10
amortization of Accumulated OCI—Pension Gain      28,000
This amortization of pension gain will result in Decrease to pension Expense
Correct answer is option C. ($28,000 decrease to Pension Expense)
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