Sachs Brands defined benefit pension plan specifies annual retirement benefits equal to: 1.6% × service years× final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginningof 2004 and is expected to retire at the end of 2038 after 35 years’ service. Her retirement is expected to span18 years. Davenport’s salary is $90,000 at the end of 2018 and the company’s actuary projects her salary to be$240,000 at retirement. The actuary’s discount rate is 7%.At the beginning of 2019, the pension formula was amended to:1.75% × Service years × Final year’s salaryThe amendment was made retroactive to apply the increased benefits to prior service years.Required:1. What is the company’s prior service cost at the beginning of 2019 with respect to Davenport after the amendment described above?2. Since the amendment occurred at the beginning of 2019, amortization of the prior service cost begins in2019. What is the prior service cost amortization that would be included in pension expense?3. What is the service cost for 2019 with respect to Davenport?4. What is the interest cost for 2019 with respect to Davenport?
Sachs Brands defined benefit pension plan specifies annual retirement benefits equal to: 1.6% × service years
× final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning
of 2004 and is expected to retire at the end of 2038 after 35 years’ service. Her retirement is expected to span
18 years. Davenport’s salary is $90,000 at the end of 2018 and the company’s actuary projects her salary to be
$240,000 at retirement. The actuary’s discount rate is 7%.
At the beginning of 2019, the pension formula was amended to:
1.75% × Service years × Final year’s salary
The amendment was made retroactive to apply the increased benefits to prior service years.
Required:
1. What is the company’s prior service cost at the beginning of 2019 with respect to Davenport after the amendment described above?
2. Since the amendment occurred at the beginning of 2019, amortization of the prior service cost begins in
2019. What is the prior service cost amortization that would be included in pension expense?
3. What is the service cost for 2019 with respect to Davenport?
4. What is the interest cost for 2019 with respect to Davenport?
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