| Course | ACC 620 Financial Reporting II |
|---|---|
| Module | Module 5 |
| Paper type | graduate pension accounting assignment under ASC 715 |
| Length | About 1,020 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 620 Module 5
Net Periodic Pension Cost and Funded Status, 2025
[Student Name]
Southern New Hampshire University
ACC 620: Financial Reporting II
Module Five Assignment
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Net Periodic Pension Cost and Funded Status, 2025
Introduction
The carrier's defined benefit plan covers former union drivers and dock workers. It was frozen in 2009, so its obligation now changes only through interest, benefit payments and changes in assumptions and experience. About 85 percent of its 4,100 participants are retired or have left with vested benefits. This assignment computes the plan's 2025 cost and funded status from the actuary's report and the trustee's statements, applying ASC 715-30 (Kieso et al., 2019). The plan matters to the carrier's investors more than its size suggests, because a $46 million deficit equals about a year and a half of the company's free cash flow after fleet purchases.
Obligation Roll-Forward
Projected benefit obligation, in thousands
| Item | Amount |
|---|---|
| Obligation, January 1, 2025 | $418,000 |
| Service cost | 0 |
| Interest cost, 5.35 percent | 22,363 |
| Benefits paid | (27,600) |
| Actuarial gain, discount rate increase to 5.45 percent | (4,600) |
| Actuarial loss, mortality and experience | 3,837 |
| Obligation, December 31, 2025 | $412,000 |
Interest cost uses the discount rate set at the beginning of the year, 5.35 percent, applied to the beginning obligation. The year-end rate rose to 5.45 percent, which reduced the obligation by about $4.6 million, but updated mortality tables showing longer life expectancy added $3.84 million, leaving a net actuarial gain of $763,000.
Plan Asset Roll-Forward
Plan assets, in thousands
| Item | Amount |
|---|---|
| Fair value, January 1, 2025 | $362,000 |
| Actual return on assets | 23,600 |
| Employer contributions | 8,000 |
| Benefits paid | (27,600) |
| Fair value, December 31, 2025 | $366,000 |
The expected return is the long-term rate, 6.75 percent, applied to the beginning market-related value, which the carrier sets equal to fair value: $24,435,000. Actual return was $23,600,000, so the asset loss for the year is $835,000. That loss is not recognized in income immediately; it joins the accumulated net loss in other comprehensive income.
Corridor Amortization
The accumulated net actuarial loss in other comprehensive income at January 1 was $78.0 million, mostly from falling discount rates in earlier years. Under ASC 715-30-35-24, only the portion exceeding a corridor of 10 percent of the greater of the beginning obligation or market-related value of assets must be amortized. The corridor is 10 percent of $418 million, $41.8 million, so $36.2 million is subject to amortization. Because almost all participants are inactive, ASC 715-30-35-24 directs amortization over their average remaining life expectancy, 18 years, rather than remaining service. The amortization is $2,011,000.
Net Periodic Pension Cost
Net periodic pension cost, 2025, in thousands
| Component | Amount |
|---|---|
| Service cost | $0 |
| Interest cost | 22,363 |
| Expected return on plan assets | (24,435) |
| Amortization of net actuarial loss | 2,011 |
| Net periodic pension credit | $(61) |
The plan produces a small credit to income because the expected return on a well-funded asset base slightly exceeds interest on the obligation and the loss amortization. Bergstresser et al. (2006) found that firms set higher expected return assumptions when earnings were more sensitive to them; here, a 6.25 percent assumption would have turned the credit into a cost of about $1.75 million, so the assumption deserves the scrutiny described in the last discussion.
Funded Status and Other Comprehensive Income
Funded status improved from a $56 million deficit to a $46 million deficit. The $10 million change is explained by contributions of $8 million, the $61,000 net credit and a $1.94 million net gain in other comprehensive income: amortization of $2.011 million and the $763,000 actuarial gain, less the $835,000 asset loss. The accumulated loss in other comprehensive income falls to $76.06 million before tax. The carrier records the pension liability as noncurrent, except for the amount by which benefits payable in 2026 exceed plan assets, which is zero here.
Reconciliation of funded status change, in thousands
| Item | Amount |
|---|---|
| Funded status, January 1 | $(56,000) |
| Employer contributions | 8,000 |
| Net periodic pension credit | 61 |
| Net gain in other comprehensive income | 1,939 |
| Funded status, December 31 | $(46,000) |
Investment Strategy and Risk
Because the plan is frozen and mostly retired, its obligation behaves like a long bond, and the trustee has been moving assets toward that profile. At year end, 58 percent of assets were in long-duration corporate and Treasury bonds and 42 percent in equities and real estate funds. The bond portion hedges much of the discount rate risk: when rates fell, both the obligation and the bonds rose. The equity portion supports the 6.75 percent expected return but leaves the funded status exposed to market declines that bonds do not offset. The investment committee's glide path raises the bond share to 80 percent when the plan reaches 95 percent funded. As that happens, the expected return assumption should fall, which will turn the current credit into a cost. Management should not keep the 6.75 percent assumption once the mix changes.
Disclosures
ASC 715-20-50 requires the roll-forwards above, the funded status and where it appears, the components of cost, the amounts in accumulated other comprehensive income, the weighted-average assumptions for both the obligation and cost, the asset allocation and fair value hierarchy levels of plan assets, expected contributions for 2026 and expected benefit payments for each of the next five years and the five years after that. The carrier expects to contribute $6 million in 2026.
Presentation
ASU 2017-07 keeps service cost alongside other pay in operating expense and moves the rest of pension cost below operating income. All other components, here the entire $61,000 credit, appear outside operating income, in other income. That matters to the carrier because its operating ratio, the main measure trucking analysts watch, now excludes pension effects entirely. Picconi (2006) found that investors and analysts were slow to price pension information, which argues for the clear separation this presentation gives.
Planned Annuity Purchase
The board is considering a 2026 purchase of group annuities from an insurer for about 1,600 retirees with smaller benefits, transferring roughly $95 million of obligation and a similar amount of assets. If settlements in a year exceed the sum of service and interest cost, which a $95 million purchase would, ASC 715-30-35-79 requires recognizing a pro rata share of the accumulated loss in other comprehensive income. At 23 percent of the obligation settled, about $17.5 million of the $76 million loss would be recognized in 2026, a large noncash charge outside operating income. The board should see that figure before approving the transaction.
References
Bergstresser, D., Desai, M., & Rauh, J. (2006). Earnings manipulation, pension assumptions, and managerial investment decisions. The Quarterly Journal of Economics, 121(1), 157-195. https://doi.org/10.1093/qje/121.1.157
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
Picconi, M. (2006). The perils of pensions: Does pension accounting lead investors and analysts astray? The Accounting Review, 81(4), 925-955. https://doi.org/10.2308/accr.2006.81.4.925
What the ACC 620 Module 5 instructions ask for
The Module Five assignment in ACC 620 usually provides actuarial and asset data for a defined benefit plan and asks you to compute pension cost and report the plan. Plan to roll forward the projected benefit obligation and plan assets, compute service cost, interest cost and expected return, determine actuarial gains and losses, apply the corridor approach to amortization and show the funded status and other comprehensive income amounts. Many versions also ask for journal entries, a pension worksheet and the income statement presentation required since ASU 2017-07. Explain each component's source as you compute it so a reader can follow the worksheet, and say which rate applies to which balance.
How this ACC 620 Module 5 pension assignment example is built
The paper starts with a $418 million obligation and $362 million of assets. Interest cost at 5.35 percent is $22.36 million; there is no service cost because the plan is frozen. Benefits paid are $27.6 million, and a small net actuarial gain of $763,000 brings the obligation to $412 million. Assets earn $23.6 million against an expected $24.4 million, an $835,000 loss, and with $8 million of contributions end at $366 million. The $78 million accumulated loss exceeds the $41.8 million corridor, so $2.01 million is amortized over 18 years. Net pension cost is a $61,000 credit, and funded status improves by $10 million. The paper ends with a preview of settlement accounting for a planned annuity purchase.
Where the ACC 620 Module 5 rubric puts the points
Rubrics for the pension assignment typically score the obligation and asset roll-forwards, computation of each cost component, gain and loss identification, corridor amortization, funded status, other comprehensive income, journal entries and presentation. Top papers explain why a frozen plan has no service cost, use beginning-of-year rates and balances correctly, choose the right amortization period for a mostly inactive plan and reconcile the change in funded status. Graders also reward discussion of risk transfer and settlements, and a reconciliation that ties the funded status change to its causes. Common deductions include using actual return in pension cost, applying the corridor to the wrong base, amortizing over service life when participants are inactive and presenting all components in operating expense.
ACC 620 Module 5 help: the mistakes that cost points
Pension papers most often slip on the gain and loss accounting, where expected return goes to income and the difference from actual return goes to other comprehensive income. A second weak spot is the corridor: it uses the greater of the beginning obligation or the beginning market-related value of assets, and only the excess is amortized. If your plan is active, service cost enters the calculation and the amortization period becomes the remaining service of active employees. Build the pension worksheet before writing; when the funded status change equals contributions plus the cost and other comprehensive income effects, the numbers are consistent. If they do not tie, check benefits paid, which appear in both roll-forwards.
Get ACC 620 Module 5 written to your instructions
Send the ACC 620 Module 5 assignment and the actuarial data. The paper will roll forward the obligation and assets, compute each cost component, apply the corridor and reconcile funded status and other comprehensive income with Codification support. Your first sample is free and generally arrives in two days. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 620 Module 5 questions, answered
Where can I find a free ACC 620 Module 5 Pension Assignment sample?
This page includes a full ACC 620 Module 5 assignment computing pension cost and funded status for a frozen trucking plan.
What are the components of net periodic pension cost?
Service cost, interest cost, expected return on plan assets, amortization of prior service cost and amortization of net gains or losses, plus any settlement or curtailment effects.
How does the corridor approach work?
Accumulated net gains or losses in excess of 10 percent of the greater of the obligation or the market-related value of assets at the start of the year are amortized into pension cost.
Where is pension cost presented after ASU 2017-07?
Service cost is reported with other compensation costs in operating income; the other components are presented outside operating income.
Why does a frozen plan have no service cost?
Because employees no longer earn additional benefits, so no new benefit obligation arises from current service.