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Sayre enterprises has a defined-benefit pension plan covering its 50 employees. in 2020, an amendment to the pension benefits caused an increase of $2,400,000 to the projected benefit obligation. sayre expects 20% of their employees to retire or quit at the end of each of the next 5 years. assuming that sayre uses the years-of-service method of amortization for prior service cost, what amount should they report as amortization of prior service cost in year one of the amendment?

Answer :

Abiolataiwo2015go

Assuming  the employee quit at the end of each of the next 5 years. The amount they should report as amortization of prior service cost in year one of the amendment is $800,000.

Amortization of prior service cost

First step is to calculate the number of employee for 5 years

Employee=50 + 40 + 30 + 20 + 10

Employee= 150

Now let calculate Amortization of prior service cost

Amortization of prior service cost=($2,400,000 ÷ 150 employee)×50 Employee

Amortization of prior service cost=$16,000×50 employee

Amortization of prior service cost=$800,000

Inconclusion the amount they should report as amortization of prior service cost in year one of the amendment is $800,000.

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