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Pension Plan Accounting And Analysis: Winona Corp's Defined Benefit Pension Plan

Understand pension plan accounting with this solved assignment.

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Pension Plan Accounting and Analysis: Winona Corp's Defined BenefitPension PlanWinona Corp's defined benefit pension plan had an amendment as of January 1, 2014, thatretroactively included benefits of $1,500,000. The remaining service life of the employeesimpacted by this change is 10 years.Winonauses the straight-line method to amortize the priorservice cost.As of January 1, 2014, Winona had the following information related to its pension plan,including adjustments for the plan amendment:Accrued/prepaid pension cost (credit)$3,790,000Projected benefit obligation5,200,000Accumulated other comprehensive income (debit)1,500,000Fair value of plan assets1,410,000Interest (discount) rate10%Expected rate of return on plan assets12%The actuary reported service cost of $600,000 in both 2014 and 2015. Annualpayments toretirees totaled $90,000. The trustee of the plan assets reported the actual rate of return to be 11%in 2014.Winona's annual year-end contribution to the plan equals the current years’service cost lessactualreturn on plan assets plus interest growth of the projected benefit obligation andamortization of prior service costs and/or gains and losses as calculated for pension expense.Required(a through g….see both pages below):a.Compute Winona's 2014contribution.Answer:To compute Winona Corp's 2014 contribution to the pension plan, we need to follow theformula provided in the problem statement:Annual Contribution = Service Cost-Actual Return on Plan Assets + Interest Growthof the Projected Benefit Obligation + Amortization of Prior Service Costs (if applicable)Given Data:•Service cost for 2014= $600,000•Actual return on plan assets in 2014= 11% of the fair value of plan assets at thebeginning of the year = 11% of $1,410,000•Interest growth of the projected benefit obligation (PBO)= Interest rate * PBO atthe beginning of the year•Amortization of prior service costs= This is amortized over 10 years (straight-linemethod). The prior service cost (retroactive benefit) is $1,500,000, and theamortization is done over the employees' remaining service life (10 years).Step-by-step Calculation:

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