On January 1, the Wiek Company contracted with its president, T. Mae, to make a single deposit immediately to establish a fund with a trustee that pays Mae $40,000 per year for each of the three years following retirement. Mae will retire after 10 years on December 31, and the three equal annual payments are to be made by the trustee each December 31 starting at the end of the 11th year. The trustee will add to the fund 8% annual compound interest each year-end. The fund is to have a zero balance on December 31, immediately after the last payment to the president. When answering the following questions, round your answers to the nearest whole number. Do not use negative signs with your answers. a. Compute the present value of the pension obligation. Answer b. How much of the total amount paid to the president during the payout period is provided Answer by interest earned during the three-year payout period?
On January 1, the Wiek Company contracted with its president, T. Mae, to make a single deposit immediately to establish a fund with a trustee that pays Mae $40,000 per year for each of the three years following retirement. Mae will retire after 10 years on December 31, and the three equal annual payments are to be made by the trustee each December 31 starting at the end of the 11th year. The trustee will add to the fund 8% annual compound interest each year-end. The fund is to have a zero balance on December 31, immediately after the last payment to the president. When answering the following questions, round your answers to the nearest whole number. Do not use negative signs with your answers. a. Compute the present value of the pension obligation. Answer b. How much of the total amount paid to the president during the payout period is provided Answer by interest earned during the three-year payout period?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Computing the Value of a Pension Agreement and Interest
On January 1, the Wiek Company contracted with its president, T. Mae, to make a single deposit immediately to establish
a fund with a trustee that pays Mae $40,000 per year for each of the three years following retirement. Mae will retire after
10 years on December 31, and the three equal annual payments are to be made by the trustee each December 31 starting
at the end of the 11th year. The trustee will add to the fund 8% annual compound interest each year-end. The fund is to
have a zero balance on December 31, immediately after the last payment to the president.
When answering the following questions, round your answers to the nearest whole number.
Do not use negative signs with your answers.
a. Compute the present value of the pension obligation.
Answer
b.
How much of the total amount paid to the president during the payout period is provided Answer
by interest earned during the three-year payout period?
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