On 1-1-2016, Hobbs Corporation initiated a funded, noncontributory, defined benefit pension plan and gave employees...
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On 1-1-2016, Hobbs Corporation initiated a funded, noncontributory, defined benefit pension plan and gave employees credit for prior employment. The company complies with generally accepted accounting principles (GAAP). The actuary estimated the prior service cost to be $700,000 on 1-1-2016. Hobbs contributed $600,000 to the pension fund on 1-1-2016, i.e., funded $600,000. The average remaining service period of current employees is approximately 6 years at all times. Service cost was $50,000 for 2016. The actual return on pension plan assets was 8% for 2016. The settlement rate (i.e., the actuary's discount rate) is 4% per year. The expected return on pension plan assets is 5% per year. The market related value of pension plan assets is the same as the fair value of pension plan assets. Hobbs contributed $125,000 to the pension fund on 12-31- 2016, i.e., funded $125,000. As do many companies, Hobbs tries to minimize its reported liabilities on the balance sheet while complying with generally accepted accounting principles (GAAP). Required On its 12-31-2016 balance sheet Hobbs will report a pension plan
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