Question

Sage Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2020 are as follows.

Employee		Future Years of Service
Jim		3
Paul		4
Nancy		5
Dave		6
Kathy		6

On January 1, 2020, the company amended its pension plan, increasing its projected benefit obligation by $77,040.

Compute the amount of prior service cost amortization for the years 2020 through 2025 using the years-of-service method, setting up appropriate schedules.

Year		Annual Amortization
2020		$enter a dollar amount
2021		enter a dollar amount
2022		enter a dollar amount
2023		enter a dollar amount
2024		enter a dollar amount
2025		enter a dollar amount

Answer 1

Computation of Service Years
Years	Jim	Paul	Nancy	Dave	Kathy	Total
2020	1	1	1	1	1	5
2021	1	1	1	1	1	5
2022	1	1	1	1	1	5
2023		1	1	1	1	4
2024			1	1	1	3
2025				1	1	2
Total	3	4	5	6	6	24
Projected benefit obligation increase = $77,040
Cost per Service-Year = $77,040/ 24 = $3,210
Computation of the amount of Prior Service Cost amortization for years
Years	Total Service	Cost Per	Annual
	Years	Service-Years	Amortization
2020	5	$ 3,210	$16,050	(5*3,200)
2021	5	$ 3,210	$16,050	(5*3,210)
2022	5	$ 3,210	$16,050	(5*3,210)
2023	4	$ 3,210	$12,840	(4*3,210)
2024	3	$ 3,000	$ 9,630	(3*3,210)
2025	2	$3,210	$ 6,420	(2*3,210)
		TOTAL	$ 77,040