Question

Pension data for David Emerson Enterprises include the following: ($ in millions) Discount rate, 10% Projected benefit obligation, January 1 $ 360 Projected benefit obligation, December 31 465 Accumulated benefit obligation, January 1 300 Accumulated benefit obligation, December 31 415 Cash contributions to pension fund, December 31 150 Benefit payments to retirees, December 31 54 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

Answer:

$123

Explanation:

Calculation to determine the service cost component of pension expense for the year ended December 31.

PENSION BENEFIT OBLIGATION

Beginning of the year Projected benefit obligation $360

Service cost ?

Interest cost $36

(10%*360)

Loss (gain) on PBO $0

Less: Retiree Benefits ($54)

End of the year Projected benefit obligation $465

Hence,

SERVICE COST= ($465-$360-$36+$54)

SERVICE COST= $123

Therefore the service cost component of pension expense for the year ended December 31 will be $123