I need show work 9 Calculate the interest cost associated wi

I need show work

9.)

Calculate the interest cost associated with the BPO for 2017 using the following information.

FACTS:

The company has a defined benefit plan

Harry\'s salary at the end of 2016

$    148,500

Retirement expected after

45

years of service

Retirement period is expected to be

20

years

Interest Rate

5.0%

Benefits are calculated as a formula as the product of:

Service already provided

20

.

Percentage

2.0%

Final year\'s salary is projected to be

$    175,000

Solution

Particulars

Amount ($)

Harry\'s salary at the end of 2016

148500

Rate of interest

5%

Interest costs (148500 x 5%)

7425

The question has asked use to calculate the interest cost of BPO for 2017. Since the salary of Harry at the end of 2016 is $148500 and the rate of interest is 5% per annum. It is clear that the interests cost of BPO for 2017 is the opportunity costs of Harry’s salary that could have been earned by the company from the salary amount. Thus, the interest cost of BPO for 2017 has been calculated as following:

(148500 x 5%) = $7425.