Question

cullumber company has five employees participating in its defined benefit pension plan. expected years of future service for these employees at the beginning of 2025 are as follows. on january 1, 2025, the company amended its pension plan, increasing its projected benefit obligation by $90,000. compute the amount of prior service cost amortization for the years 2025 through 2030 using the years-of-service method, setting up

Answer 1

The amount of prior service cost amortization for the years 2025 through 2030 using the years-of-service method would be $ 18, 750 per year.

How to find the service cost amortization?

Add up the total future years of service for all employees to get a baseline for distributing the pension plan amendment cost. Calculate the proportion of each employee's future service years relative to the total.

Distribute the $90,000 increase in projected benefit obligation proportionally over the future service years for each employee.

The service cost per employee is:

Kenneth:

`= \( (3)/(24) * \$90,000 = \$11,250 \); Annual: \$11,250 / 3 \\= \$3,750`

Edward:

`= \( (4)/(24) * \$90,000 = \$15,000 \); Annual: \$15,000 / 4 = \$3,750`

Donna:

`= \( (5)/(24) * \$90,000 = \$18,750 \); Annual: \$18,750 / 5 = \$3,750`

Kevin:

`= \( (6)/(24) * \$90,000 = \$22,500 \); Annual: \$22,500 / 6 = \$3,750`

Ruth:

`= \( (6)/(24) * \$90,000 = \$22,500 \); Annual: \$22,500 / 6 = \$3,750`

Each employee's annual amortization from 2025 through 2030 is $3,750.

Since there are five employees, the total annual amount for the company is:

= 5 x 3, 750

= $ 18, 750

The employees and their Future Years of Service are:

Kenneth 3

Edward 4

Donna 5

Kevin 6

Ruth 6