FAR: All MCQ's: 1/19/2019

Question 1

Williamsburg Corp. obtains the following information from its actuary. All amounts are as of January 1, Year 3 (beginning of the year).

Projected benefit obligation $2,000,000
Fair value of plan assets $1,850,000
Unrecognized net loss $325,000
Average remaining service period 5 years

What amount of net loss should be recognized as part of net pension cost in Year 3 using the corridor approach?

Answer 1

$25,000

The corridor approach is applied to determine the amount of net loss to amortize (recognize) as part of pension expense. Under the corridor approach, only the unrecognized net gain or loss in excess of 10% of the greater of the beginning-of-year PBO or the beginning-of-year fair value of plan assets is amortized. In this case, the PBO ($2,000,000) is larger than the fair value of the plan assets ($1,850,000). The corridor is $200,000 ($2,000,000 × 10%). The amount in excess of corridor is $125,000 ($325,000 – $200,000). The excess is amortized over the average remaining service period ($125,000/5 years = $25,000).