Give step-by-step solution with explanation and final answer:
crane inc has beginning of hte year present values fo rits projected benefit obligation and market related values for its pension plan ass

Question

Give step-by-step solution with explanation and final answer:
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VIPSolutions · Accepted Answer

# Pension Plan: Amortization of Net Gain or Loss Using Corridor Approach

Let's solve the problem step by step.

---

## **Step 1: Organize the Data**

### **Projected Benefit Obligation (PBO) & Plan Assets at Beginning of Year**

| Year | PBO           | Plan Assets   | Avg. Remaining Service Life (yrs) |
|------|---------------|--------------|-----------------------------------|
| 2024 | $860,000      | $774,000     | 8                                 |
| 2025 | $1,075,000    | $946,000     | 8                                 |
| 2026 | $1,376,000    | $1,247,000   | 11                                |
| 2027 | $1,806,000    | $1,720,000   | 11                                |

### **Net Gain/Loss During Year**

| Year | Gain/Loss During Year |
|------|----------------------|
| 2024 | $14,900 gain         |
| 2025 | $34,400 gain         |
| 2026 | $25,800 loss         |
| 2027 | $12,900 loss         |

---

## **Step 2: Corridor Calculation**

### **Corridor = 10% of Greater of PBO or Plan Assets (at BOY)**

| Year | 10% of PBO   | 10% of Plan Assets | Corridor (Greater) |
|------|--------------|--------------------|--------------------|
| 2024 | $86,000      | $77,400            | $86,000            |
| 2025 | $107,500     | $94,600            | $107,500           |
| 2026 | $137,600     | $124,700           | $137,600           |
| 2027 | $180,600     | $172,000           | $180,600           |

---

## **Step 3: Track Cumulative Net Gain/Loss**

- **Gains are negative.**
- **Losses are positive.**

| Year | Begin Cum. Gain/Loss | Gain/Loss During Year | End Cum. Gain/Loss |
|------|----------------------|----------------------|--------------------|
| 2024 | $0                   | $(14,900)$           | $(14,900)$         |
| 2025 | $(14,900)$           | $(34,400)$           | $(49,300)$         |
| 2026 | $(49,300)$           | $25,800$             | $(23,500)$         |
| 2027 | $(23,500)$           | $12,900$             | $(10,600)$         |

---

## **Step 4: Determine if Amortization is Needed ("Corridor Test")**

- **If absolute value of cumulative gain/loss at BOY > corridor, amortize the excess.**
- **Amortization = (Excess over corridor) / Avg. Remaining Service Life**

### **2024**
- Begin Cum. Gain/Loss = $0 \rightarrow$ No amortization.

### **2025**
- Begin Cum. Gain/Loss = $(14,900)$ (gain)
- Corridor = $86,000$
- $|$(14,900)$| = 14,900 < 86,000$ → No amortization.

### **2026**
- Begin Cum. Gain/Loss = $(49,300)$ (gain)
- Corridor = $107,500$
- $|$(49,300)$| = 49,300 < 107,500$ → No amortization.

### **2027**
- Begin Cum. Gain/Loss = $(23,500)$ (gain)
- Corridor = $137,600$
- $|$(23,500)$| = 23,500 < 137,600$ → No amortization.

---

## **Step 5: Create Amortization Schedule**

| Year | Begin Cum. Gain/Loss | Corridor | Excess Over Corridor | Amortization Period | Amortization Amount | End Cum. Gain/Loss  |
|------|----------------------|----------|---------------------|---------------------|--------------------|---------------------|
| 2024 | $0$                  | $86,000$ | $0$                 | 8 yrs               | $0$                | $(14,900)$          |
| 2025 | $(14,900)$           | $107,500$| $0$                 | 8 yrs               | $0$                | $(49,300)$          |
| 2026 | $(49,300)$           | $137,600$| $0$                 | 11 yrs              | $0$                | $(23,500)$          |
| 2027 | $(23,500)$           | $180,600$| $0$                 | 11 yrs              | $0$                | $(10,600)$          |

---

## **Step 6: Final Answers**

### **a) Amount of Net Gain/Loss Amortized and Charged to Pension Expense Each Year**

- **2024:** $0$
- **2025:** $0$
- **2026:** $0$
- **2027:** $0$

### **b) Minimum Amortization of Loss**

- **2024:** $0$
- **2027:** $0$

---

## **Summary Table**

| Year | Amortization of Net Gain/Loss |
|------|------------------------------|
| 2024 | $0                           |
| 2025 | $0                           |
| 2026 | $0                           |
| 2027 | $0                           |

---

## **Explanation**

- Under the **corridor approach**, **no amortization** of gain/loss is required in any year because the cumulative net gain/loss is **less than 10% of the PBO or plan assets** at the start of each year.
- Thus, **no amount is charged to pension expense for amortization of net gain/loss** in the years 2024–2027.

---

**Final Answer:**  
**Zero amortization of net gain/loss is required for all years (2024–2027).**

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