Question

Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2014 are as follows. On January 1, 2014, the company amended its pension plan, increasing its projected benefit obligation by $72,000.

Compute the amount of prior service cost amortization for the years 2014 through 2019 using the years-of-service method, setting up appropriate schedules.

Answer 1

Answer and Explanation:

Computation of service years

Year Jim Paul Nancy Dave Kathy Total × Cost Amortization

2014 1 1 1 1 1 5 × 3,000 $15,000

2015 1 1 1 1 1 5 × 3,000 $15,000

2016 1 1 1 1 1 5 × 3,000 $15,000

2017 1 1 1 1 4 × 3,000 $12,000

2018 1 1 1 3 × 3,000 $9,000

2019 1 1 2 × 3,000 $6,000

Total $72,000

Future years of service

Jim 3

Paul 4

Nancy 5

Dave 6

Kathy 6

Total 24

Working note:-

Cost per service year = Benefit obligation ÷ Total

= $72,000 ÷ 24

= $3,000