I need show work 10.) Calculate the total prior service cost using the following
ID: 2394823 • Letter: I
Question
I need show work
10.)
Calculate the total prior service cost using the following information. Write your answer on the cover sheet.
FACTS:
The company has a defined benefit plan
Seth's salary at the end of 2017
$ 135,000
Retirement expected after
45
years of service
Retirement period is expected to be
20
years
Interest Rate
4.0%
Benefits are calculated as a formula as the product of:
Service already provided
15
years
Percentage
2.0%
Final year's salary is projected to be
$ 250,000
AFTER THE PLAN IS INITALLY ADOPTED A CHANGE IS MADE TO THE BENEFITS CALCULATION AS FOLLOWS:
Percentage of service yrs. & salary
2.5%
Changed from 2.0% previously
Change made at the beginning of
2017
10.)
Calculate the total prior service cost using the following information. Write your answer on the cover sheet.
FACTS:
The company has a defined benefit plan
Seth's salary at the end of 2017
$ 135,000
Retirement expected after
45
years of service
Retirement period is expected to be
20
years
Interest Rate
4.0%
Benefits are calculated as a formula as the product of:
Service already provided
15
years
Percentage
2.0%
Final year's salary is projected to be
$ 250,000
AFTER THE PLAN IS INITALLY ADOPTED A CHANGE IS MADE TO THE BENEFITS CALCULATION AS FOLLOWS:
Percentage of service yrs. & salary
2.5%
Changed from 2.0% previously
Change made at the beginning of
2017
Explanation / Answer
Calculations of total prior service cost :-
Benefits = sercvice already provided*petcentage*final year
salary
Benefits =15*2%*250000
=75000 for 15years
Now changes is made in benefits calculations so now calculations :
Service already provided *2.5%*final salary
=14*2.5%*250000
=87500
Total Prior service cost =
salary = 135000
Benefit = 75000
new benefit=12500(87500-75000)
Total cost=222500 dollar
+ retirement interest = 115000*20*4%=92000
So total prior service cost = 225000+92000
=317000