Question

Smita Corp has the following beginning-of-the-year present values for its projected benefit obligation and market-related values for its pension plan assets.

Year	PBO	Plan Assets
2017	$1,850,000	$1,900,000
2018	2,650,000	2,600,000
2019	3,180,000	2,765,000
2020	3,200,000	3,250,000

The average remaining service life per employee in 2017 and 2018 is 10 years and in 2019 and 2020 is 12 years. The net gain or loss that occurred during each year is as follows: 2017, $295,000 loss; 2018, $15,000 loss; 2019, $114,000 loss; and 2020, $205,000 gain. Using the corridor approach and assuming no net gains or losses existed prior to 2017, compute the amount of net loss amortized and charged to pension expense in each of the four years. (2pts; 0.5pts each)

Answer 1

Answer- Computation the net gain or loss amortized and charged to pension expenses under the corridor approach:-

Year	Projected Benefit Obligation	Plan Assets Value	Net Gain/ Loss
2017	$1,850,000	$1,900,000	($295,000)
2018	2,650,000	2,600,000	($15,000)
2019	3,180,000	2,765,000	($114,000)
2020	3,200,000	3,250,000	$205,000

Minimum amortization under corridor method is :-

Minimum amortization= Surplus/ Average remaining service period

Corridor approach and minimum loss amortization

Year	Projected Benefit Obligation	Plan Assets Value	10% Corridor	Accumulated OCI Gain/ (Loss)	Minimum Amortization of Loss
	(a)	(b)	Greater of (a) or (b) * 10%
2017	$1,850,000	$1,900,000	$190,000	$0	$0
2018	2,650,000	2,600,000	$265,000	$295,000	$3,000
2019	3,180,000	2,765,000	$318,000	$307,000	$917
2020	3,200,000	3,250,000	$325,000	$421,000	$8,000

Working Note:-

The accumulated OCI is 0 as it is the beginning of the year. Hence there is no gain or loss.

For the year 2018:-

Amortization= $295,000-$265,000/ 10 Years

=$30,000/ 10 years

=$3,000

Loss is $3,000

Accumulated OCI and minimum amortization of loss for the year 2019:-

Accumulated OCI= $295,000-$3,000+$15,000

=$307,000

Amortization= $307,000-$318,000/ 12 Years

=$11,000/ 12

=$917

Gain-$917

Accumulated OCI and minimum amortization of loss for the year 2020:-

Accumulated OCI= $307,000+$114,000

' =$421,000

Amortization= $421,000-$325,000/ 12 Years

=$96,000/ 12

=$8,000