Chapter 17, Problem 17.12E

(1)

To determine

Accumulated benefit obligation (ABO): This is the estimated present value of future retirement benefits, accumulated based on the current compensation levels.

Projected benefit obligation (PBO): This is the estimated present value of future retirement benefits, accumulated based on the future compensation levels.

To determine: The amount estimated as retirement payments for the year 2016.

(2)

To determine

Annuity: The fixed amount paid or received in equal time periods is referred to as annuity.

Present value: This is the amount of future value reduced or discounted at a rate of interest till particular current date.

Formula to compute present value:

$\begin{array}{l}\text{Present}\\ \text{value}\end{array}\}\text{ = }\left\{\begin{array}{l}\text{Annuity value × }\\ \text{Present value annuity factor of \$1 at interest rate for time periods}\end{array}\right\}$

To determine: The present value of the retirement annuity of $64,800 (From Requirement 1).

(3)

To determine

The PBO of SM (present value of the retirement benefits of $590,193 (From Requirement 2)).

(4)

To determine

The ABO of SM for the year 2016

(5)

To determine

The PBO of SM for the year 2017.

(6)

To determine

To compute: Service cost and interest cost from the changes in PBO.