Computation of Prior Service Cost Amortization, Pension Expense, Journal Entries, and Net Gain or Loss

(Computation of Prior Service Cost Amortization, Pension Expense, Journal Entries, and Net

Gain or Loss) Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its employ- ees since 1991. Prior to 2014, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 2014, is as follows.

1. The company has 200 employees. All these employees are expected to receive benefits under the plan. The average remaining service life per employee is 12 years.

2. The projected benefit obligation amounted to $5,000,000 and the fair value of pension plan assets was $3,000,000. The market-related asset value was also $3,000,000. Unrecognized prior service cost was $2,000,000.

On December 31, 2014, the projected benefit obligation and the accumulated benefit obligation were

^{$4,850,000 and $4,025,000, r espectivel y . The fair value of the pension plan assets amounted to $4,100,000 at}

^{the end of the yea r . A 10% settlement rate and a 10% expected asset r eturn rate we r e used in the actuarial}

^{p r esent value computations in the pension plan. The p r esent value of benefits attributed by the pension}

^{benefit formula to employee service in 2014 amounted to $200,000. The employer ’s contribution to the plan}

^{assets amounted to $775,000 in 2014. This p r oblem assumes no payment of pension benefits.}

Instructions

^{(Round all amounts to the nea r est dolla r .)}

(a) Prepare a schedule, based on the average remaining life per employee, showing the prior service cost that would be amortized as a component of pension expense for 2014, 2015, and 2016.

^{(b) Compute pension expense for the year 2014.}

^{(c) P r epa r e th e journa l entrie s r equi r e d t o r epor t th e accountin g fo r th e company’ s pensio n pla n fo r 2014.}

^{(d) Compute the amount of the 2014 inc r ease/dec r ease in net gains or losses and the amount to be}

^{amortized in 2014 and 2015.}