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25 April, 08:04

On January 1, 2021, Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2021 and 2022 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2021.

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  1. 25 April, 10:46
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    The answer is $593,440.

    Explanation:

    Service cost = $600,000

    Less: Expected return on plan assets (W1) = ($66,560)

    Pension expense for the year 2022 = $593,440

    Working (W1):

    Funding on 1st January 2021 = $400,000

    Add: actual return on 31 December 2021 = $400,000*8% = $32,000

    Balance of plan assets on 31 December, 2021 = $432,000

    Add: Current funding on 1st January 2022 = $400,000

    Balance of plan assets on 1st January 2022 = $832,000

    Balance of plan assets on 31st December 2022 = $832,000*8% = $66,560
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