Question

The following table shows the beginning-of-the-year present values for its projected benefit obligation and market-related values for XTRA Inc's pension plan assets, for the years 2019-2022. The table also shows the gains or losses that occurred each year. There was no cumulative unamortized gain or loss related to the pension assets as of the beginning of 2019. Beginning Projected Benefit Obligation Beginning market related value of plan assets Gain or loss that occurred during the year 2019 2020 2021 2022 1,000,000 1,250,000 1,600,000 2,100,000 900,000 1,100,000 1,450,000 2,000,000 165,000 gain 40,000 gain 30,000 loss 15,000 loss In the years 2019 and 2020, the average remaining service-life per employee was 10 years; in the years 2021 and 2022, it was 8 years. Set up an appropriate amortization schedule that will show the amount of net gain or loss that should be amortized to pension expense in each of these four years. (Round all answers to the nearest whole dollar.)

please show all work

Answer 1

As given in the table we are going to calculate the net gain of loss amortized and charged to pension expense under Corridor approach:

Minimum amortization under the corridor method is :

Minimum amortization = Surplus / Average remaining service period

Year	Project Benefit Plan ($)	Plan Assets Value ($)	10% corridor	Accumulated OCI (Gain/Loss) ($)	Minimum Amortization of loss ($)
	(a)	(b)	Greated of (a) or (b), 10%
2019	1,000,000	900,000	100,000	0	0
2020	1,250,000	1,100,000	125,000	165,000	4,000
2021	1,600,000	1,450,000	160,000	201,000	5,125
2022	2,100,000	2,000,000	210,000	225,875	1,985

Work out:

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

For the year 2020:

Amortization = $165,000 - 125,000 / 10 years

Amortization = $40,000 / 10 = $4,000 Thus the loss is $4,000.

Accumulated OCI and minimum amortization of loss for the year 2021:

Accumulated OCI = $165,000 - $4,000 + $40,000 = $201,000

Thus the accumulated OCI is $201,000

Amortization = $ 201,000 - $160,000 / 8 = $5125

The minimum amortization of loss is $5125.

Accumulated OCI and minimum amortization of loss for the year 2022:

Accumulated OCI = $201,000 - $5,125 + $ 30,000 =$225,875

Amortization = $225,875 - $210,000 / 8 = $15,875 / 8 = $1985 (1984.375 Round off)

Hence the minimum amortization loss is $1985.