Question

Pension data for David Emerson Enterprises include the following:

($ in millions)
Discount rate, 10%
Projected benefit obligation, January 1 $ 340
Projected benefit obligation, December 31 480
Accumulated benefit obligation, January 1 315
Accumulated benefit obligation, December 31 430
Cash contributions to pension fund, December 31 165
Benefit payments to retirees, December 31 57

Required: Assuming no change in actuarial assumptions and estimates, determine the service cost component of pension expense for the year ended December 31.

Answer 1

$163 million

Step-by-step explanation:

The computation of service cost is shown below:-

Service cost = Projected benefit obligation - December 31 - Projected benefit obligation January 1 - Interest cost (340 × 10%) + benefit payment to retiree Dec 31

= $480 million - $340 million - $34 million + $57 million

= $537 million - $374 million

= $163 million

Therefore for computing the service for we simply applied the above formula.