Question

Triblock Industries has a defined benefit pension plan. Using a discount rate of 6%, the actuary estimated the company’s projected benefit obligation (PBO) to be $278,343 and $309,796 at the beginning and end of the current year, respectively. The pension plan has not been amended and there were no revisions to the estimates used to derive the PBO. What portion of the current year’s increase in the PBO is attributable to service (that is, the service cost component of pension cost) during the current year?

Answer 1

Answer:

Current year’s increase in the PBO that is associated to service is $14,752

Explanation:

Projected Benefit Obligation is the present value of retirement benefit that an employee gets.  

PBO value at the end of the year = $309,796

PBO value at the beginning of the year = $278,343

Addition in PBO during the year = $309,796 - $278,343 = $31,453

Interest cost = $278,343*6% = $16,701

Addition associated with service = $31,453 - $16,701 = $14,752