Question

(6) I expense to be reported on the income statement for 2017 Prepare the journal entries to record pension expense for 2017. Problem 3. Amortization of prior service cost using years-of-service method. On January 1, 2016. Solano Incorporated amended its pension plan which caused an increase of $6,000,000 in its projected benefit obligation. The company has 400 employees who are expected to receive benefits under the company's defined benefit pension plan. The personnel department provided the following information regarding expected employee retirements: Number of Employees Expected Retirements on December 31 40 2016 120 2017 60 2018 160 2019 2020 400 The company plans to use the years-of-service method in calculating the amortization of prior service cost as a component of pension expense. Instructions Prepare a schedule which shows the amount of annual prior service cost amortization that the company will recognize as a k20-1 component of pension expense from 2016 through 2020. K19-1

Answer 1

Computation of service-years
Year						Total
2016	40	120	60	160	20	400
2017		120	60	160	20	360
2018			60	160	20	240
2019				160	20	180
2020					20	20
	40	240	180	640	100	1200

Cost Per Service Year: $6,000,000 ÷ 1,200 = $5,000

Solano Incorporated Computation of Annual Prior Service Cost Amortization
Year	Total Service-Years	Cost per Service-Year	Annual Amortization
2016	400	$5000	$2000000
2017	360	$5000	1800000
2018	240	$5000	1200000
2019	180	$5000	900000
2020	20	$5000	100000
	1200		$6000000