Question

Harper Inc. 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, $208,879; benefits paid to retirees, $45,678; interest cost, $8,911. There was no amortization of any prior service costs or amortization of gains/losses. The discount rate applied by the actuary was 7%. What was the beginning PBO?

Answer 1

Answer: $127,300

Step-by-step explanation:

The interest cost for the year is based on the Beginning Pension Benefit Obligation (PBO) in the manner:

Interest cost = Beginning PBO * Discount rate

Beginning PBO can therefore be calculated as:

8,911 = Beginning PBO * 7%

Beginning PBO = 8.911 / 7%

Beginning PBO = $127,300