Question

SKCM Co. has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $7,200. The discount rate applied by the actuary was 8%. What was the beginning PBO

Answer 1

Answer: $90,000

Explanation:

The Interest cost is based on the beginning PBO and the discount rate by the formula:

Interest cost = Beginning PBO * Discount rate

7,200 = Beginning PBO * 8%

Beginning PBO = 7,200 / 8%

= $90,000