Barton, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2021. January 1, 2021 December 31, 2021 Fair value of pension plan assets $5,600,000 $6,000,000 Projected benefit obligation 6,400,000 6,880,000 Accumulated benefit obligation 1,120,000 1,360,000 Accumulated OCI - (Gains / Losses) -0- (120,000) The service cost component of pension expense for 2021 is $600,000 and the amortization of prior service cost due to an increase in benefits is $80,000. The settlement rate is 10% and the expected and actual rates of return are 9%. What is the amount of pension expense for 2021?

Amount of pension expense for 2021 is $816,000.

Explanation:

Note: The data in the question are merged together and they therefore sorted before answering the question. The complete question with the sorted data is therefore given as follows:

Barton, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2021.

                                                       January 1, 2021     December 31, 2021

Fair value of pension plan assets     $5,600,000              $6,000,000

Projected benefit obligation                6,400,000                6,880,000

Accumulated benefit obligation            1,120,000                 1,360,000

Accumulated OCI - (Gains / Losses)            -0-                       (120,000)

The service cost component of pension expense for 2021 is $600,000 and the amortization of prior service cost due to an increase in benefits is $80,000. The settlement rate is 10% and the expected and actual rates of return are 9%. What is the amount of pension expense for 2021?

The explanation to the answer is now given as follows:

The amount of pension expense for 2021 can be calculated using the following formula:

Amount of pension expense for 2021 = Service cost component of pension expense for 2021 + Amortization of prior service cost due to an increase in benefits + (Projected benefit obligation on January 1, 2021 * Settlement rate) - (Fair value of pension plan assets on January 1, 2021 * Rates of return) (1)

Where;

Service cost component of pension expense for 2021 = $600,000

Amortization of prior service cost due to an increase in benefits = $80,000

Projected benefit obligation on January 1, 2021 = $6,400,000

Settlement rate = 10%

Fair value of pension plan assets on January 1, 2021 = $5,600,000

Rates of return = 9%

Substituting the values into equation (1), we have:

Amount of pension expense for 2021 = $600,000 + $80,000 +($6,400,000 * 10%) - ($5,600,000 * 9%)

Amount of pension expense for 2021 = $816,000