LeMond has 50 full time employees. Recently the company decided to initiate a pension plan as part of its employee compensation package.  The pension plan will start on January 1, 2019.  As required by accounting standards, the controller of the company needs to report the pension obligation (liability).  The following estimates have been collected:     Average length of time to retirement                             15 years Expected life duration after retirement                          10 years Total pension payment expected each year after retirement for all employees                            $800,000 annually   On the basis of the information above, determine the present value of the pension liability.  Assume the payment is made at the end of the year and the interest rate is 8 percent.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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  1. LeMond has 50 full time employees. Recently the company decided to initiate a pension plan as part of its employee compensation package.  The pension plan will start on January 1, 2019.  As required by accounting standards, the controller of the company needs to report the pension obligation (liability).  The following estimates have been collected:

 

 

Average length of time to retirement                             15 years

Expected life duration after retirement                          10 years

Total pension payment expected each year

after retirement for all employees                            $800,000 annually

 

On the basis of the information above, determine the present value of the pension liability.  Assume the payment is made at the end of the year and the interest rate is 8 percent.  

 

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