Hi guys, I have a question about pension plan.
In the Becker textbook, it says <gain> and losses includes the difference between the expected and actual return on plan assets when the expected return on plan assets is used to calculate pension expense.
But in below question, I do not understand why amortization of (gain ) or loss is 0.
Big books, Inc. has the following information related to its defined benefit pension plan:
Dec. 31. Year 6:
Projected benefit obligation: $1,500,000
FV of plan assets: 1,400,000
Unrecognized prior service cost: 200,000
Unrecognized net transition asset: 60,000
Dec. 31. Year 7:
Projected benefit obligation: $1,750,000
FV of plan assets: 1,670,000
Service Cost: 220,000
Assumptions:
Discount Rate: 6%
Expected return on plan assets: 8%
Big Books makes an annual pension plan contribution of $200,000. The company's employees had an average remaining service life of 20 years on 12/31/year 6. The company paid benefits of $70,000 in Year 7 and expects to pay benefits totaling $170,000 to retired employees in Year 8. Big Books has an effective tax rate of 30%. The actual return on plan assets was 10%. What would Big Books reports as U.S. GAAP net periodic pension cost on its Dec. 31, Year 7, income statement?
Answer: Service cost: $220,000
Interest cost: 90,000(1,500,000*6%)
Expected return on plan assets: (112,000) (1,400,000*8%)
Amortization of prior service cost: 10,000 (200,000/20 years)
Amortization of (gains) / losses: 0
Amortization of transition asset: (3,000) (60,000/20 years)
Net periodic pension cost: $205,000
Since expected return on plan assets is 8%, actual return on plan assets is 10%. there should be unrecognized gain of the differences between actual return and expected return.
I am kind of confused about this part.
Thanks
.