Question

Pawliczek Company has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $117,000; benefits paid to retirees, $14,500; interest cost, $9,000. The discount rate applied by the actuary was 10%. What was the beginning PBO?

Answer 1

The beginning Projected Benefit Obligation (PBO) of Pawliczek Company's defined benefit pension plan was $122,500, calculated by rearranging the ending PBO equation and plugging in the provided numbers.

Step-by-step explanation:

To calculate the beginning Projected Benefit Obligation (PBO) for Pawliczek Company's defined benefit pension plan, we can rearrange the formula for ending PBO. The ending PBO is calculated by adding the interest cost to the beginning PBO, then subtracting any benefits paid to retirees.

Here is the formula, rearranged to solve for beginning PBO:

• Beginning PBO + Interest Cost - Benefits Paid = Ending PBO

To find the beginning PBO, we will use the provided information:

• Ending PBO = $117,000
• Benefits Paid to Retirees = $14,500
• Interest Cost = $9,000

Substitute the known values into the formula and solve for the beginning PBO:

Beginning PBO + $9,000 - $14,500 = $117,000

Beginning PBO = $117,000 - $9,000 + $14,500

Beginning PBO = $108,000 + $14,500

Beginning PBO = $122,500

Therefore, the beginning PBO of the company's defined benefit pension plan was $122,500.