Question

Kingbird 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 $88,560.

Required:
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

Answer:

Total number of years remaining for employees = 3 + 4 + 5 + 6 + 6 =  24 years.

Projected benefit of $88,560.

Year                                                                           Annual Amortization

2020    88,560 * 5/24                                                      $‭18,450‬

2021      88,560 * 5/24                                                     $‭18,450‬

2022      88,560 * 5/24                                                    $‭18,450‬

2023      88,560 * 4/24                                                    $‭14,760‬

2024      88,560 * 3/24                                                    $‭11,070‬

2025     88,560 * 2/24                                                     $‭7,380‬

Total                                                                                 $88,560

Every year the projected benefit is amortized by the number of employees still working divided by the total number of years for all the employees.