Methods to Amortize Unrecognized Prior Service Cost Wolz Company, a small business, has had a defined benefit pension plan for its employees for several years. At the beginning of 2007 the company amended the pension plan; this amendment provides for increased benefits based on services rendered by certain employees in prior periods. The company’s actuary has determined that the related unrecognized prior service cost amounts to $140,000. The company has four participating employees who are expected to receive the increased benefits. The following is a schedule identifying the employees and their expected years of future service:
|
Employee Numbers |
Expected Years of Future Service |
|
1 |
2 |
|
2 |
3 |
|
3 |
4 |
|
4 |
5 |
Required
1. Using the straight line method, (a) compute the average remaining service life, and (b) prepare a schedule to amortize the unrecognized prior service cost.
2. Using the years of future service method instead, prepare a set of schedules to determine (a) the amortization fraction for each year, and (b) the amortization of the unrecognized prior service cost.