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Chapter 20: Question 1BE (page 1162)

AMR Corporation (parent company of American Airlines) reported the following (in millions). Service cost $366 Interest on P.B.O. 737 Return on plan assets 593 Amortization of prior service cost 13 Amortization of net loss 154 Compute AMR Corporation’s pension expense.

Short Answer

Expert verified

Pension Expense is the type of expense an organization bears for its employees eligible for receiving a pension amount from the organization. Its amount strictly depends upon the pension plan taken.

Step by step solution

01

Given are the following amounts:

Particulars

Amount (in millions)

Service cost

$366

Interest cost on projected benefit obligation

$737

Amortization of net loss

$154

Return on plan assets

$593

Prior service cost amortization

$13

02

Calculation of Pension Expense of AMR Corporation. 

Particulars

Amount (in millions)

Service cost

$366

Add: Interest cot on PBO

$737

Less: Return on the plan assets

$593

Add: Prior service cost amortization

$13

Add: Amortization of net loss

$154

Pension Expense

$677

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Most popular questions from this chapter

Hollenbeck Foods Inc. sponsors a postretirement medical and dental benefit plan for its employees. The following balances relate to this plan on January 1, 2017. Plan assets \(200,000 Expected postretirement benefit obligation 820,000 Accumulated postretirement benefit obligation 200,000 No prior service costs or OCI balances exist. As a result of the plan’s operation during 2017, the following additional data are provided by the actuary. Service cost is \)70,000 Discount rate is 10% Contributions to plan are \(65,000 Expected return on plan assets is \)10,000 Actual return on plan assets is \(15,000 Benefi ts paid to employees are \)44,000 Average remaining service to full eligibility: 20 years Instructions (a) Using the preceding data, compute the net periodic postretirement benefit cost for 2017 by preparing a worksheet that shows the journal entry for postretirement expense and the year-end balances in the related postretirement benefit memo accounts. (Assume that contributions and benefits are paid at the end of the year.) (b) Prepare any journal entries related to the postretirement plan for 2017 and indicate the postretirement amounts reported in the financial statements for 2017.

How does an “asset gain or loss” develop in pension accounting? How does a “liability gain or loss” develop in pension accounting?

Question: What is meant by “past service cost”? When is past service cost recognized as pension expense?

At the end of the current year, Kennedy Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)245,000. The amount of the vested benefits for the plan is \(225,000. Kennedy has an actuarial gain of \)8,300. What account and amount(s) related to its pension plan will be reported on the company’s statement of financial position? (a) Pension Liability and \(74,300. (b) Pension Liability and \)90,000. (c) Pension Asset and \(233,300. (d) Pension Asset and \)110,000.

Why didn’t the FASB cover both types of post-retirement benefits—pensions and healthcare—in the earlier pension accounting rules?
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