(a) Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan f
ID: 2473868 • Letter: #
Question
(a)
Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its employees since 1991. Prior to 2014, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 2014, is as follows.1. The company has 200 employees. All these employees are expected to receive benefits under the plan. The average remaining service life per employee is 12 years. 2. The projected benefit obligation amounted to $5,042,200 and the fair value of pension plan assets was $3,001,100. The market-related asset value was also $3,001,100. Unrecognized prior service cost was $2,041,100.
On December 31, 2014, the projected benefit obligation and the accumulated benefit obligation were $4,868,000 and $4,030,100, respectively. The fair value of the pension plan assets amounted to $4,171,600 at the end of the year. A 10% settlement rate and a 10% expected asset return rate were used in the actuarial present value computations in the pension plan. The present value of benefits attributed by the pension benefit formula to employee service in 2014 amounted to $206,300. The employer’s contribution to the plan assets amounted to $777,100 in 2014. This problem assumes no payment of pension benefits.
Explanation / Answer
a.
Amortization of prior service cost=$2,041,100/12
=$170,092
The amortization of prior serivce cost is calculated by dividing the unrecognized prior service cost with the average remaining service life per employee. Amortization of prior service cost=Unrecognized prior service cost/average remaining service life per employee Unrecognized prior service cost=$2,041,100 Average remaining service life per employee=12 yearsAmortization of prior service cost=$2,041,100/12
=$170,092
Amortization of prior service cost for the year 2014, 2015 and 2016 based on average remaining life per employee are as under: 2014 $170,092 2015 $170,092 2016 $170,092Related Questions
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