**Methods to Amortize Prior Service Cost**Wolz Company, a small business, has had a defined benefit pension plan for its employees for several years. At the beginning of 2016, Wolz amended the pension plan; this amendment provides for increased benefits based on services rendered by certain employees in prior periods. Wolz’s actuary has determined that the related prior service cost amounts to $140,000. Wolz has four participating employees who are expected to receive the increased benefits. The following is a schedule identifying the employees and their expected years of future service:| Employee Numbers | Expected Years of Future Service ||------------------|---------------------------------|| 1 | 2 || 2 | 3 || 3 | 4 || 4 | 5 |**Required:**1. **a.** Using the straight-line method, compute the average remaining service life. If required, round your answer to one decimal place. **Answer: \_\_\_\_ years**2. **b.** Using the straight-line method, prepare a schedule to amortize the prior service cost. Enter all amounts as positive numbers.**WOLZ COMPANY** *Prior Service Cost Amortization* *2016 – 2019*| Year | Total Prior Service Cost | Amortization | Remaining Prior Service Cost ||------|--------------------------|--------------|------------------------------|| 2016 | | $ | $ || 2017 | | | || 2018 | | | || 2019 | | | |*Graph/Diagram Explanation:*The schedule above outlines the anticipated amortization of the prior service cost of $140,000 over the period from 2016 to 2019, using the straight-line method. The table will require calculation and input of the amortization amount for each year and the corresponding remaining prior service cost balance. **Title: Understanding Amortization Fractions and Prior Service Cost Amortization Using the Years-of-Future-Service Method**### 2a. Amortization FractionsThe WOLZ COMPANY Years of Future Service Amortization Fractions table is designed to help calculate the amortization fraction for each year, based on the expected years of future service and how many service years are rendered each year.- **Columns**: Expected Years of Future Service (rows 1-4), with columns for the Number of Service Years Rendered from 2016 to 2020.- **Total**: Calculated by aggregating the figures from all columns for each row.- **Amortization Fraction**: To be noted as a fraction (e.g., 3/10) for each year.### 2b. Prior Service Cost AmortizationThe WOLZ COMPANY's Years of Future Service Prior Service Cost Amortization table records the amortization of prior service costs.- **Columns**: - **Total Prior Service Cost**: An entry field for the overall cost for each year from 2016 to 2020. - **Amortization Fraction**: Required for each year; this fraction is used to determine amortization. - **Amortization Prior Service Cost**: Calculates the amortized cost by applying the amortization fraction to the total prior service cost. - **Remaining Prior Service Cost**: Indicates the remaining service cost after amortization for each year.**Usage**: This schedule aids in accurately determining the annual amortization of service costs, essential for financial planning and allocation in businesses. All values should be entered as positive numbers to ensure accurate calculations.

Amortized cost per year = Prior service cost * Amortization fraction

Answered: Methods to Amortize Prior Service Cost…

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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Lewis Industries adopted a defined benefit pension plan on January 1, 2021. By making the provisions of the plan retroactive to prior years, Lewis incurred a prior service cost of $2 million. The prior service cost was funded immediately by a $2 million cash payment to the fund trustee on January 2, 2021. However, the cost is to be amortized (expensed) over 10 years. The service cost—$250,000 for 2021—is fully funded at the end of each year. Both the actuary’s discount rate and the expected rate of return on plan assets were 9%. The actual rate of return on plan assets was 11%. At December 31, the trustee paid $16,000 to an employee who retired during 2021.Required:Determine each of the following amounts as of December 31, 2021, the fiscal year-end for Lewis:1. Projected benefit obligation.2. Plan assets.3. Pension expense.
wifty Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2020 in which no benefits were paid. 1. The actuarial present value of future benefits earned by employees for services rendered in 2020 amounted to $55,500. 2. The company’s funding policy requires a contribution to the pension trustee amounting to $144,729 for 2020. 3. As of January 1, 2020, the company had a projected benefit obligation of $908,100, an accumulated benefit obligation of $802,100, and a debit balance of $400,100 in accumulated OCI (PSC). The fair value of pension plan assets amounted to $601,200 at the beginning of the year. The actual and expected return on plan assets was $54,100. The settlement rate was 9%. No gains or losses occurred in 2020 and no benefits were paid. 4. Amortization of prior service cost was $50,500 in 2020. Amortization of net gain or loss was not required in 2020. (a)…
arasota Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2020 are as follows. Employee Future Years of Service Jim 3 Paul 4 Nancy 5 Dave 6 Kathy 6 On January 1, 2020, the company amended its pension plan, increasing its projected benefit obligation by $74,880.Compute the amount of prior service cost amortization for the years 2020 through 2025 using the years-of-service method, setting up appropriate schedules. Year Annual Amortization 2020 $enter a dollar amount 2021 enter a dollar amount 2022 enter a dollar amount 2023 enter a dollar amount 2024 enter a dollar amount 2025 enter a dollar amount
Sheridan Company has 160 employees who are expected to receive benefits under the company's defined-benefit pension plan. The total number of service-years of these employees is 1,600. The actuary for the company's pension plan calculated the following net gains and losses: For the Year EndedDecember 31 (Gain) Or Loss 2020 $600,000 2021 (514,000) 2022 950,000 Prior to 2020, there was no unrecognized net gain or loss.Information about the company's projected benefit obligation and market-related (and fair) value of plan assets follows: As of January 1 2020 2021 2022 Projected benefit obligation $2,060,000 $2,300,000 $2,900,000 Fair value of plan assets 1,640,000 2,420,000 2,510,000 Based on the above information about Sheridan Company, prepare a schedule which reflects the amount of net gain or loss to be amortized by the company as a component of pension expense for the years 2020, 2021, and 2022. The company amortizes…
Lewis Industries adopted a defined benefit pension plan on January 1, 2018. By making the provisions of theplan retroactive to prior years, Lewis incurred a prior service cost of $2 million. The prior service cost wasfunded immediately by a $2 million cash payment to the fund trustee on January 2, 2018. However, the cost isto be amortized (expensed) over 10 years. The service cost—$250,000 for 2018—is fully funded at the end ofeach year. Both the actuary’s discount rate and the expected rate of return on plan assets were 9%. The actualrate of return on plan assets was 11%. At December 31, the trustee paid $16,000 to an employee who retiredduring 2018.Required:Determine each of the following amounts as of December 31, 2018, the fiscal year-end for Lewis:1. Projected benefit obligation2. Plan assets3. Pension expense

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