Can you please explain this portion in detail: Expected return on the plan asset
ID: 2566835 • Letter: C
Question
Can you please explain this portion in detail: Expected return on the plan assets ($32 actual, plus $8 loss) =(40)
Not sure where the 40 came from? Please help by showing all calculations. Thanks
* Service cost $ 80
Interest cost 42
Expected return on the plan assets ($32 actual, plus $8 loss) (40)
Amortization of prior service cost 4
Amortization of net loss 2
Pension expense $ 88
Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas-Roberts Industries during 2016 Prior service cost at Jan. 1, 2016, from plan amendment at the beginning of 2013 (amortization: $4 million peryear) Net loss-AOCI at Jan.1, 2016 (previous losses exceeded previous gains) Average remaining service life of the active employee group Actuary's discount rate ($ in millions) $28 million $80 million 10 years 7% Plan Assets $400 PBO Beginning of 2016 Service cost Interest cost, 7% Loss (gain) on PBO Less: Retiree benefits End of 2016 $600 80 42 (14) (38) $670 Beginning of 2016 Return on plan assets, 8% (10% expected) Cash contributions Less: Retiree benefits End of 2016 32 90 (38) $484 Required 1. Determine Douglas-Roberts' pension expense for 2016 and prepare the appropriate journal entries to record the expenseExplanation / Answer
While calculating pension expenses Expected return on the plan assets is to be considered rather than actual return. Expected return on the plan assets is equlal to Beginning plan assets*Expected rate = 400*10% = $40 However actual return on plan assets is only $32. So the differential of actual and expected return of $8(40-32) is considered as loss and added to actual return to make it equal to expected return