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Chapter 20: E20-5 (page 1163)

Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2017 are as follows. Future Employee Years of Service Jim 3 Paul 4 Nancy 5 Dave 6 Kathy 6 On January 1, 2017, the company amended its pension plan, increasing its projected benefit obligation by $72,000. Instructions Compute the amount of prior service cost amortization for the years 2017 through 2022 using the years-of-service method, setting up appropriate schedules.

Short Answer

Expert verified

The total number of service years is a term used when an employee serves their employmentin an organization. The time duration when an employee keeps working in the company is service years.

Step by step solution

01

Firstly, the computation of the total number of service years will be determined as:

In the year 2017: The total service years will be 5 years for Jim, Paul, Nancy, Dave, and Kathy.

In the year 2018: The total service years will be 5 years for Jim, Paul, Nancy, Dave, and Kathy.

In the year 2019: The total service years will be 5 years for Jim, Paul, Nancy, Dave, and Kathy.

In the year 2020: The total service years will be 4 years for Paul, Nancy, Dave, and Kathy.

In the year 2021: The total service years will be 3 years for Nancy, Dave, and Kathy.

In the year 2022: The total service years will be 2 years for Dave and Kathy.

02

Step 2:Secondly, the cost per service year will be calculated.

Costperserviceyear=ProjectedbenefitobligationTotalserviceyears=$72,00024=$3,000

03

Lastly, the computation of annual prior service cost amortization will be as follows:

Year

Total service years (Step 1)

Cost per service year (Step 2)

Annual Amortization

2017

5

$3,000

$15,000

Add: 2018

5

$3,000

$15,000

Add: 2019

5

$3,000

$15,000

Add: 2020

4

$3,000

$12,000

Add: 2021

3

$3,000

$9,000

Add: 2022

2

$3,000

$6,000

Total annual amortization

$72,000

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Most popular questions from this chapter

Hobbs Co. has the following defined benefit pension plan balances on January 1, 2017. Projected benefit obligation \(4,600,000 Fair value of plan assets 4,600,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends its pension agreement so that prior service costs of \)600,000 are created. Other data related to the pension plan are: 2017 2018 Service cost \(150,000 \)170,000 Prior service cost amortization 鈥�0鈥� 90,000 Contributions (funding) to the plan 200,000 184,658 Benefits paid 220,000 280,000 Actual return on plan assets 252,000 350,000 Expected rate of return on assets 6% 8% Instructions (a) Prepare a pension worksheet for the pension plan in 2017. (b) Prepare any journal entries related to the pension plan that would be needed at December 31, 2017. (c) Prepare a pension worksheet for 2018 and any journal entries related to the pension plan as of December 31, 2018. (d) Indicate the pension-related amounts reported in the 2018 financial statements.

What is the role of an actuary relative to pension plans? What are actuarial assumptions?

What are the major differences between postretirement healthcare benefits and pension benefits?

Kreter Co. provides the following information about its postretirement benefit plan for the year 2017. Service cost $ 45,000 Contribution to the plan 10,000 Actual and expected return on plan assets 11,000 Benefits paid 20,000 Plan assets at January 1, 2017 110,000 Accumulated postretirement benefit obligation at January 1, 2017 330,000 Discount rate 8% Instructions Compute the postretirement benefit expense for 2017

Name three approaches to measuring benefit obligations from a pension plan and explain how they differ.
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