Question

Sachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.6% x service years x final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2004 and is expected to retire at the end of 2038 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $94,000 at the end of 2018 and the company's actuary projects her salary to be $300,0000 at retirement. The actuary's discount rate is 8%. (FV of $1, PV of $1. FVA of $1 PVA of $1. FVAD of S1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) At the beginning of 2019, the pension formula was amended to: 175% x Service years Final year's salary The amendment was made retroactive to apply the increased benefits to prior service years. Required: 1. What is the company's prior service cost at the beginning of 2019 with respect to Davenport after the amendment described above? 2. Since the amendment occurred at the beginning of 2019, amortization of the prior service cost begins in 2019. What is the prior service cost amortization that would be included in pension expense? 3. What is the service cost for 2019 with respect to Davenport? 4. What is the interest cost for 2019 with respect to Davenport? 5. Calculate pension expense for 2019 with respect to Davenport, assuming plan assets attributable to her of $220,000 and a rate of return (actual and expected) of 10%. (For all requirements, do not round intermediate calculations. Round your final answers to nearest whole dollar.)

Answer 1

- Answer Page: No O © Periool sevice center PBO without amendment = 1:64. x service years x tinal yo tama =116% X 15 years X 300,000 -- $72000 ( 15 years ..2004 to 2018 Present value of PBO = $42000 x pw. ef annuity (87,18):51-84 XPV (841, 20) ( Remaining) YYA = 35-15 = 20 E 72000 x 1- (1 + 0.08 0:08 (1+0.08)20 = 72000 X 9.3718 X0.21445 = $144738 PBO witts amendment = 145% X 15 years X 300,000, ..2 $ 48750

Page No Present value of PBO = $48150 X pv og annuity (87.118) X I pv (8%, 20) = 78750 x 1" (1+0.08) 1 0:08 (1+0.08) = 78750 X 9.3718 9 X 0.21455 - $158346 Prior service cosf = 158346 - 144738 = 13608 1. Prior service cosf - $ 13608 @ Porica senvice sauf amortization Prior service cost Prior service cost amorfigation -- expected remaining years 13608 20 - 68004 2 680 1. Prior service.coot amortization = $680

Page No ③ © Service cost 50 Service cosf = 175% X 1 year * $300,000 = $ 5250 Present value os service cosf = 5250 x PV of annuity (84.18) *PV(84.19) Co rting - 5250 x 1-(1+0.08)18 0.08 (Honogja = 5250 X 9.371887136 X 0.231712064 - 11400. 79 en 1401 @ 1. Service cosf - $1401 Enterest cost Interest cost = Present value of PBO with amendment X interest rate w

Page, No 4 = 58 346 X 8%. = 12668 :: Interest.cosf = $12668 Pension expense Service cook = $ 11401 Interest cook = $12668 Return on plan ansels = 220,000x 10 •f. - $ 22000 Amortization of Prior service coof - $680 Pension expense = 11401 +12668 – 22000 +680 = $.2749 Pension expense = $2449