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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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At the beginning of 2019, Brent Company amended its defined benefit pension plan. The amendment entitled five active participating employees to receive increased future benefits based on their prior service. Brent's actuary determined that the prior service cost for this amendment amounts to $330,000. Employee A is expected to retire after 1 year, employee B after 2, employee C after 3, employee D after 4, and employee E after 5 years.

Required:

Using the straight-line method, (1) compute the average remaining service life, and (2) prepare a schedule to amortize the prior service cost.

1.

To determine

Ascertain the average remaining service life of company B, using the straight line method.

Explanation

Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.

Ascertain the average remaining service life of company B as follows:

Average remaining service life=Service years rendered Total number of employees=

2.

To determine

Prepare a schedule for amortizing the prior service cost of company B.

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