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Intermediate Accounting: Reporting...

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

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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McCollum Company amended its noncontributory defined benefit pension plan at the beginning of 2016. The prior service cost related to this amendment amounts to $240,000. Information regarding the four participating employees is as follows:

Chapter 19, Problem 9MC, McCollum Company amended its noncontributory defined benefit pension plan at the beginning of 2016.

Using the straight-line method, what is the amount of prior service cost to be amortized in 2019?

  1. a. $0
  2. b. $40,000
  3. c. $60,000
  4. d. $80,000

To determine

Calculate the amount of amortized prior service cost of Company M for 2019 under straight line method.

Explanation

Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.

Pension expense: The pension expense is portion of the cost of the employees’ pension benefits over the employees’ service period and reflects the terms of the plan.

Calculate the amount of amortized the prior service cost of company M as follows:

Year

Prior service cost ($)

(A)

Amortization ($)(3)

(B)

Remaining prior service cost ($)(AB)
2016240,00080,000160,000
2017160,00080,00080,000
201880,00080,0000
2019000

Table (1)

Note: The remaining service cost for the previous year is considered as the beginning prior service cost for the current year.

Working note (1):

Calculate the service years rendered:

EmployeeNumber of years’ Service rendered
A1
B2
C4
D5
Total12

Table (2)

Working note (2):

Calculate the average remaining service life

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