Wu Company has established a defined benefit pension plan for its lone employee, Ronald Dalton. Annual payments
Question:
Wu Company has established a defined benefit pension plan for its lone employee, Ronald Dalton. Annual payments under the pension plan are equal to Ronald’s highest lifetime salary multiplied by (2% × number of years with the company). As of the beginning of 2011, Ronald had worked for Wu Company for 10 years. His salary in 2010 was $50,000. Ronald is expected to retire in 25 years, and his salary increases are expected to average 3% per year during that period. Ronald is expected to live for 15 years after retiring and will receive the first annual pension payment one year after he retires. Compute Wu Company’s accumulated benefit obligation (ABO) as of January 1, 2011, assuming
(1) An 8% discount rate and
(2) A 12% discount rate.
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen