Question

On January 1, 2018, Tiffany Academy instituted a defined benefit pension plan for its employees. The...

On January 1, 2018, Tiffany Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2018 and 2019 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Tiffany funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2018. What net pension liability should Tiffany report in its balance sheet for the year ended December 31, 2019?

A. $361,440

B. $393,440

C. $421,440

D. $487,440

Business   Accounting   
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Answer #1
Answer
The Correct answer is A : $361,440
Explanation

Defined Benefit Obligation
Particulars 2018 2019
Opening Balance, PBO 0 600,000
+Current Service Cost 600,000 600,000
+Interest Cost 0 60,000
+/-Acturial Gain/losses 0 0
-Benefits paid out 0 0
Closing Balance, PBO 600,000 1,260,000
Plan Assets
Particulars 2018 2019
Opening Balance, Plan Assets 0 432,000
Contribution during the year 400,000 400,000
Interest on Plan assets 32,000 66,560
Closing Balance, Plan Assets 432,000 898,560
Net Liability as per Balance sheet for 2019 = 1260000-898560 = 361,440
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