Reference no: EM132720036
Generous Company has established a defined benefit plan indicating a plan formula for annual benefit equal to 2% multiplied by the number of years in service multiplied by the final year's salary. The annual benefit is payable at the end of each year.
- An employee was hired by the entity on January 1, 2000 and expected to retire on December 31, 2044. The employee's retirement is expected to span 21 years.
- The employee's final salary at retirement is expected to be 800,000 and the appropriate discount rate is 8%.
- On January 1, 2020, the plan formula was amended by increasing the percentage from 2% to 3%. The amendment was made retroactive to consider past service years.
- The Present Value of an Ordinary Annuity of 1 at 8% for 21 periods is 10.02 and the present value of 1 at 8% for 25 periods is 0.15
Problem 1: What is the projected benefit obligation before amendment on January 1, 2020?
a. 480,960
b. 320,000
c. 160,000
d. 400,000
Problem 2: What is the projected benefit obligation after amendment on January 1, 2020?
a. 480,000
b. 721,440
c. 240,000
d. 320,640
Problem 3: What is the past service cost for 2020 as a result of the amendment?
a. 160,000
b. 120,240
c. 240,480
d. 0