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Hi, I don’t understand why we deduct the interest on contribution. Becker materials have not covered that. Ugh…Please help. Thank you.
On January 2, 20X1, Loch Co. established a noncontributory defined-benefit pension plan covering all employees and contributed $400,000 to the plan. At December 31, 20X1, Loch determined that the 20X1 service and interest costs on the plan were $720,000. The expected and the actual rate of return on plan assets for 20X1 was 10%. There are no other components of Loch’s pension expense. What amount should Loch report as accrued pension cost in its December 31, 20X1, balance sheet?
A. $280,000
Incorrect B. $320,000
C. $360,000
D. $720,000
You answered B. The correct answer is A.
The unfunded part of the total pension cost is the total in accrued pension cost. The service and interest costs for the year add to it, and the contributions and plan return lower it.
20X1 service and interest cost $720,000
Less:
Contribution to plan $400,000
Interest on contribution (10% of $400,000) 40,000 440,000
Accrued pension cost $280,000
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