Write a memo to Vickie Plato, explaining why in some years she must amortize some of the net gains… 1 answer below »

(Gains and Losses, Corridor Amortization) Vickie Plato, accounting clerk in the personnel office of Streisand Corp., has begun to compute pension expense for 2014 but is not sure whether or not she should include the amortization of unrecognized gains/losses. She is currently working with the following beginning-of-the-year present values for the projected benefit obligation and market-related values for the pension plan:

Projected Benefit Obligation

Plan Assets Value

2011

$2,200,000

$1,900,000

2012

2,400,000

2,500,000

2013

2,900,000

2,600,000

2014

3,900,000

3,000,000

The average remaining service life per employee in 2011 and 2012 is 10 years and in 2013 and 2014 is 12 years. The net gain or loss that occurred during each year is as follows.

2011

$280,000 loss

2012

85,000 loss

2013

12,000 loss

2014

25,000 gain

(In working the solution, you must aggregate the unrecognized gains and losses to arrive at year-end balances.)

Instructions

You are the manager in charge of accounting. Write a memo to Vickie Plato, explaining why in some years she must amortize some of the net gains and losses and in other years she does not need to. In order to explain this situation fully, you must compute the amount of net gain or loss that is amortized and charged to pension expense in each of the 4 years listed above. Include an appropriate amortization schedule, referring to it whenever necessary.

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