Question

Use the following illustration to answer problems 22-23. Frank’s Soap Company had the following actuarial

gains and losses (beginning balance Jan. 1, 2020 for accumulated OCI was $0):

During 2020

$250,000

During 2021

120,000

Frank’s also had the following balances:

On Jan 1,

Projected Benefit Obligation

Plan Assets

2020

1,400,000

1,250,000

2021

2,000,000

1,800,000

The constant average remaining service years per employee are 10 years.

22. ______What is the minimum amortized gain or loss for 2020?

a. $0

b. $200,000

c. $120,000

d. $14,000

23. ______What is the minimum amortized gain or loss for 2021?

a. $0

b. $5,000

c. $120,000

d. $150,000

Answer 1

Corridor rule for Amortization of net loss - AOCI

If the gain or loss exceed 10% of (Pension benefits obligation or Plan assets at fair value, whichever is higher). In this case, corridor rule allows actuarial gain or loss to be amortized gradually over service life period into income statement.

If the gain or loss less than 10% of (Pension benefits obligation or Plan assets at fair value, whichever is higher). In this case, corridor rule does not allow reporting of amortization of net gain or loss.

Year	2020	2021
Projected benefit obligation	$        1,400,000	$        2,000,000
Plan assets value	$        1,250,000	$        1,800,000
Net loss (gain)	$            250,000	$            120,000
Average remaining service life in years	10	10
Year	2020	2021
Projected benefit obligation	$        1,400,000	$        2,000,000
Plan assets value	$        1,250,000	$        1,800,000
Which ever is higher from above	$        1,400,000	$        2,000,000
10% of higher amount as per Corridor rule	$            140,000	$            200,000
Accumulated OCI at beginning	$                         0	$            250,000
Less: 10% of higher amount as per Corridor rule	$            140,000	$            200,000
Excess at beginning	$                         0	$              50,000
Divided by: Average remaining service life in years	10	10
Amortization of net loss - AOCI	$                         0	$                5,000
Year	2020	2021
Accumulated OCI at beginning	$                         0	$            250,000
Add: Net loss (gain)	$            250,000	$            120,000
Less: Amortization of net loss - AOCI	$                      (0)	$              (5,000)
Accumulated OCI at ending	$            250,000	$            365,000
Year	2020	2021
Amortization of net loss - AOCI	$                         0	$                5,000