Question

E20.5 (LO 3) (Application of Years-of-Service Method) Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2020 are as follows.

Employee Future year of services
Jim 3
Paul 4
Nancy 5
Dave 6
Kathy 6

On January 1, 2020, the company amended its pension plan, increasing its projected benefit obligation by $150,768.

Compute the amount of prior service cost amortization for the years 2020 through 2024 using the years-of-service method, setting up appropriate schedules.

Answer 1

Solution and Explanation:

Computation of service years

Year Jim Paul Nancy Dave Kathy Total * Cost Amortization

2014 1 1 1 1 1 5 * 3000 15000

2015 1 1 1 1 1 5 * 3000 15000

2016 1 1 1 1 1 5 * 3000 15000

2017 1 1 1 1 4 * 3000 12000

2018 1 1 1 3 * 3000 9000

2019 1 1 2 * 3000 6000

72000

Future years of service

Jim 3

Paul 4

Nancy 5

Dave 6

Kathy 6

24

`cost per service year $=\$ 72000 / 24=\$ 3000$`