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    sagnik2422's Avatar
    sagnik2422 Posts: 77, Reputation: 1
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    #1

    Mar 19, 2014, 08:35 AM
    Accounting Defined Benefit Pension Plan Need Help
    Louie Company has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $8,000. The discount rate applied by the actuary was 8%. What was the service cost for the year?

    Answer was $12,000 but I don't get how.

    My work: I set up the PBO T Chart with 110,000 ending balance on credit side and interest cost of 8,000 on credit side, and benefits paid of 10,000 on debit side but I can't seem to work the numbers to get $12,000.
    Please show how to solve with steps.

    Thanks
    Fidget1's Avatar
    Fidget1 Posts: 105, Reputation: 4
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    #2

    Mar 19, 2014, 11:00 AM
    The interest cost was $8000, which is 8% of the opening bal (not given in the question), but means that the opening bal must've been $100,000.

    Therefore: op bal $100,000+$8000 interest cost - $10,000 benefits paid = $98,000.

    As the closing bal is $110,000, the difference must be the service cost: $110,000 - $98,000 = $12,000.
    sagnik2422's Avatar
    sagnik2422 Posts: 77, Reputation: 1
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    #3

    Mar 19, 2014, 02:05 PM
    Quote Originally Posted by Fidget1 View Post
    The interest cost was $8000, which is 8% of the opening bal (not given in the question), but means that the opening bal must've been $100,000.

    Therefore: op bal $100,000+$8000 interest cost - $10,000 benefits paid = $98,000.

    As the closing bal is $110,000, the difference must be the service cost: $110,000 - $98,000 = $12,000.
    Thank you :) I never would have seen that, please look for my questions :) I am studying for an exam!
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