Question

Frazier Refrigeration amended its defined benefit pension plan on December 31, 2021, to increase retirement benefits earned with each service year. The consulting actuary estimated the prior service cost incurred by making the amendment retroactive to prior years to be $825,000. Frazier's 150 present employees are expected to retire at the rate of approximately 15 each year at the end of each of the next 10 years.

Required:
1. Using the service method, calculate the amount of prior service cost to be amortized to pension expense in each of the next 10 years.

Answer 1

1.

	Number of years	Fraction of employees still employed		Prior Total Service year		Service cost, amount amortized
2022	150	150/825	X	825,000	=	150,000
2023	135	135/825	X	825,000	=	135,000
2024	120	120/825	X	825,000	=	120,000
2025	105	105/825	X	825,000	=	105,000
2026	90	90/825	X	825,000	=	90,000
2027	75	75/825	X	825,000	=	75,000
2028	60	60/825	X	825,000	=	60,000
2029	45	45/825	X	825,000	=	45,000
2030	30	30/825	X	825,000	=	30,000
2031	15	15/825	x	825,000	=	15,000
Total	825					825,000