Question

          1. The projected benefit obligation is the measure of pension obligation that

a.	can no longer be used under GAAP as an estimate for reporting the service cost component of pension expense.
b.	is not an allowable estimate for reporting the service cost component of pension expense for defined benefit plans.
c.	is one of several allowable estimates for reporting the service cost component of pension expense.
d.	is the only allowable estimate for reporting the service cost component of pension expense.

2. The following information relates to the defined benefit pension plan for the McDonald Company for the year ending December 31, 2008.

Projected benefit obligation, January 1 ..............	$4,600,000
Projected benefit obligation, December 31 ............	4,729,000
Fair value of plan assets, January 1 .................	5,035,000
Fair value of plan assets, December 31 ...............	5,565,000
Expected return on plan assets .......................	450,000
Amortization of deferred gain ........................	32,500
Employer contributions ...............................	425,000
Benefits paid to retirees ............................	390,000
Settlement rate ......................................	10%

          Service cost for the year would be

Answer 1

1 d) is the only allowable estimate for reporting the service cost component of pension expense.

2 Projected benefit obligation at the year end =opening projected benefit obligation + interest on the opening benefit obligation + current service cost - benefits paid

Rearrangint the equation we get

Service cost = Projected benefit obligatiom at the end of the year - opening projected benefit obligation - interest + benefits paid

Interest = 4600000 x 0.1 = 460000

Service cost = 4729000 - 4600000 - 460000 +390000

= 59000

Please like the solution if satisfied and drop a comment in case of any doubt.

Thankyou