Question

The projected benefit obligation was $80 million at the beginning of the year. Service cost for the year was $10 million. At the end of the year, pension benefits paid by the trustee were $6 million and there were no pension-related other comprehensive income accounts. The actuary's discount rate was 5%. What was the amount of the projected beneft obligation at year-end? Note: Enter your answer in millions (1.e., 10,000,000 should be entered as 10).

Answer 1

The projected benefit obligation at year-end is $84 million.

Step-by-step explanation:

The projected benefit obligation at the year-end can be calculated by adding the service cost and subtracting the pension benefits paid by the trustee from the beginning projected benefit obligation. In this case, the service cost is $10 million and the benefits paid are $6 million. Therefore, the amount of the projected benefit obligation at year-end is $80 million + $10 million - $6 million = $84 million.

Answer 2

To calculate the year-end projected benefit obligation, add the service cost and interest accrued to the beginning obligation, then subtract benefits paid. After computation, the obligation is $88 million at year-end.

Step-by-step explanation:

The amount of the projected benefit obligation at year-end can be calculated by adjusting the beginning-of-year obligation for any service costs, benefits paid, and interest accrued during the year.

Here is the calculation:

• Beginning-of-year obligation = $80 million
• Service cost add = $10 million
• Benefits paid subtract = -$6 million
• Interest accrued on beginning obligation (5% of $80 million) = $4 million

So, the end-of-year projected benefit obligation is:
End-of-year obligation = Beginning-of-year obligation + Service cost + Interest accrued - Benefits paid
End-of-year obligation = $80 million + $10 million + $4 million - $6 million
End-of-year obligation = $88 million

The projected benefit obligation at year-end would therefore be $88 million.