Question

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9.)	Calculate the interest cost associated with the BPO for 2017 using the following information.
	FACTS:
	The company has a defined benefit plan
	Harry's salary at the end of 2016	$    148,500
	Retirement expected after	45	years of service
	Retirement period is expected to be	20	years
	Interest Rate	5.0%
	Benefits are calculated as a formula as the product of:
	Service already provided	20	.
	Percentage	2.0%
	Final year's salary is projected to be	$    175,000

Answer 1

Particulars	Amount ($)
Harry's salary at the end of 2016	148500
Rate of interest	5%
Interest costs (148500 x 5%)	7425

The question has asked use to calculate the interest cost of BPO for 2017. Since the salary of Harry at the end of 2016 is $148500 and the rate of interest is 5% per annum. It is clear that the interests cost of BPO for 2017 is the opportunity costs of Harry’s salary that could have been earned by the company from the salary amount. Thus, the interest cost of BPO for 2017 has been calculated as following:

(148500 x 5%) = $7425.