[jslo123]

At December 31, High Horse Company has the following pension plan information:
Fair value of plan assets, beginning of year $ 1,100,000
Fair value of plan assets, ending of year 1,135,000
Contributions 275,000
Benefits paid 340,000
Expected rate of return on plan assets 7%
The expected return on plan assets was used to calculate net periodic pension cost. No actuarial gains or losses were incurred during the year. High Horse’s effective tax rate is 30%. What is the net gain to be reported in other comprehensive income under U.S. GAAP?
a.$23,000 b.$77,000 c.$0 d.$16,100
The answer is D, but why isn’t it C? Don’t we have to use the corridor approach by taking 10% of the beginning value of plan assets? Since the gain (before tax) is $23,000 and it doesn’t exceed the 10%, why would any gain be recognized at all?

[Anonymous]

Here is how you should answer this question;

know this………gain reported in OCT = Differences between expected return on plan asset vs. the actual amount.

Now, what is your expected plan asset?
$1,100,0000 X .07 = $77,000

What is the actual return on your plan asset?
$1,100,0000 + $275,000+ (fill the blank) – $340,000 = $1,135,000
blank is $100,000

Differences = $100,000 vs. $77,000
know this……net amount goes to OCT = $23,0000 X (1-.30) = $16,100
or……$23,000 X .30 = $6,900
$23,000 – $6,900 = $16,100

hint; Corridor approach is related to amortizing unrecog loss…….nothing to do with this Q.

hope this helps.

[jslo123]

Thank you for your reply!

I got everything except the CORRIDOR APPROACH.

What do you mean by unrecognized loss? When I did questions reworded the same, they always used the corridor approach.

[Author]

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