Question

E20.5 (LO 3) (Application of Years-of-Service Method) Andrews 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 year of services
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 $150,768.

Compute the amount of prior service cost amortization for the years 2020 through 2024 using the years-of-service method, setting up appropriate schedules.

Answer 1

Solution and Explanation:

Computation of service years

Year  Jim  Paul  Nancy  Dave  Kathy  Total  *  Cost  Amortization

2014  1  1  1  1  1  5            *  3000     15000

2015  1  1  1  1  1  5             *  3000  15000

2016  1  1  1  1  1  5            *  3000  15000

2017   1  1  1  1  4            *  3000  12000

2018    1  1  1  3             *  3000  9000

2019     1  1  2              *  3000  6000

                               72000

Future years of service        

Jim         3          

Paul  4          

Nancy  5          

Dave  6          

Kathy  6          

       24          

$cost per service year =\ 72000 / 24=\ 3000$