Question

Calculate amortization of G/L - pensions - G

a) Constant-dollar amortization
b) Variable-dollar amortization
c) Level-percent of remaining covered payroll
d) Projected benefit obligation amortization

Answer 1

There are four methods to calculate the amortization of G/L - pensions: constant-dollar, variable-dollar, level-percent of remaining covered payroll, and projected benefit obligation amortization.

Step-by-step explanation:

a) Constant-dollar amortization: This method calculates the amortization of the pension liability by spreading the difference between the expected return on plan assets and the interest cost over the service life of the employees. It assumes a fixed dollar amount for each year.

b) Variable-dollar amortization: This method calculates the amortization based on a percentage of the unfunded projected benefit obligation (PBO) or accumulated benefit obligation (ABO). The percentage is applied to the covered payroll or service cost.

c) Level-percent of remaining covered payroll: This method calculates the amortization based on a fixed percentage of the remaining covered payroll each year until the liability is fully amortized.

d) Projected benefit obligation amortization: This method calculates the amortization based on a percentage of the projected benefit obligation (PBO). The percentage is applied to the covered payroll or service cost.