Assume that the pension benefit formula of ABC Corporation calls for paying a pension benefit of $250 per year for each year of service with the company plus 50% of the projected last year’s salary at retirement. Payments begin one year after the employee attains the age of 65 and are paid annually thereafter. The average life expectancy of employees is 76.
The pension plan is adopted on January 1, 2014. One of the company’s employees, I.M. Workaholic, is granted credit for 10 years of prior service. He is 50 years old at the date the plan is adopted. His current annual salary is $20,000, but his salary level when he retires in 15 years is expected to be $30,000.
Assume a 10% rate of interest for both the discount rate and the expected rate of return on plan assets.
1. Determine the PBO and ABO related to Workaholic’s pension benefits as of January 1,
2. What would the projected benefit obligation be on December 31, 2014?
3. How much pension expense should ABC Corporation recognize in 2014 for Workaholic? Show the components of pension expense.

  • CreatedSeptember 10, 2014
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