Question

Blue 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 Years of Service 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 $87,120. Compute the amount of prior service cost amortization for the years 2020 through 2025 using the years-of-service method, setting up appropriate schedules.

Answer 1

$87,120

Step-by-step explanation:

The computation of amount of prior service cost amortization is shown below:-

Year Annual Amortization

2020 ($87,120 × 5 ÷ 24) $18,150

2021 ($87,120 × 5 ÷ 24) $18,150

2022 ($87,120 × 5 ÷ 24) $18,150

2023 ($87,120 × 4 ÷ 24) $14,520

2024 ($87,120 × 3 ÷ 24) $10,890

2025 ($87,120 × 2 ÷ 24) $7,260

Total $87,120

So, the amount of prior service cost amortization is $87,120