Question

Fannie’s Funnel Cakes has five employees participating in its defined-benefit pension plan. Expected years of future service for these employees at the beginning of 2018 are as follows:

              

                                             Employee                           Future Years of Service

                                             Fran                                                    6

                                             Frank                                                  1

                                             Fang                                                   3

                                             Franklin                                              6

                                             Felix                                                    4

              

On Jan. 1, 2018, the company amended its pension plan increasing its PBO by $210,000. Compute the amount of prior service cost amortization table for the years 2018 – 2023 (6 years) using the years-of-service method.

Answer 1

Answer -

Step - (1) - Computation of Service Years -

Years	Fran	Frank	Fang	Franklin	Felix	Total
2018	1	1	1	1	1	5
2019	1	-	1	1	1	4
2020	1	-	1	1	1	4
2021	1	-	-	1	1	3
2022	1	-	-	1	-	2
2023	1	-	-	1	-	2
Total	6	1	3	6	4	20

.

Step - (2) - Computation of Cost Per Service Year -

	Particulars	Explanation
I.	Projected benefit obligation (PBO) increase	Given in question	$210000
II.	Total service years	Calculated in step - (1)	20 years
Cost Per Service Year		I / II	$10500

.

Step - (3) - Computation of amount of prior service cost amortization table -

Years	Total Service Years	Cost Per Service Years ($)	Calculation	Annual Amortization ($)
2018	5	10500	5 * $10500	52500
2019	4	10500	4 * $10500	42000
2020	4	10500	4 * $10500	42000
2021	3	10500	3 * $10500	31500
2022	2	10500	2 * $10500	21000
2023	2	10500	2 * $10500	21000
Total				210000