Answered: How much is the current service cost in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Spartan Company encourages its employees older than 60 years old to extend their employment with the entity by promising a lump sum benefit equal to 5% of final salary for each year of service they remain employed by the entity after their 60th birthday provided they remain employed until they are 65, at which time, in accordance with local laws, employees are required to retire. The benefit is payable to the employees on retirement. There are three (3) employees entitled for the benefit whose 60th birthday is on January 1, 2021. Their salary rates for the year ended December 31, 2021 is P1,500,000.

In 2021 and 2022, the entity made the following assumptions:
•      Employee salary rate should increase by 7% compounded each year.
•      The rate of return on high-quality corporate bonds is 10%.
•      The employee salary rate for 2022 is P1,605,000.

How much is the current service cost in 2022 profit or loss?

Group of answer choices

P201,441

P243,743

P241,729

P221,585

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