I need show work 10 Calculate the total prior service cost u

I need show work

10.)

Calculate the total prior service cost using the following information. Write your answer on the cover sheet.

FACTS:

The company has a defined benefit plan

Seth\'s salary at the end of 2017

$    135,000

Retirement expected after

45

years of service

Retirement period is expected to be

20

years

Interest Rate

4.0%

Benefits are calculated as a formula as the product of:

Service already provided

15

years

Percentage

2.0%

Final year\'s salary is projected to be

$    250,000

AFTER THE PLAN IS INITALLY ADOPTED A CHANGE IS MADE TO THE BENEFITS CALCULATION AS FOLLOWS:

Percentage of service yrs. & salary

2.5%

Changed from 2.0% previously

Change made at the beginning of

2017

Solution

Calculations of total prior service cost :-

Benefits = sercvice already provided*petcentage*final year

salary

Benefits =15*2%*250000

=75000 for 15years

Now changes is made in benefits calculations so now calculations :

Service already provided *2.5%*final salary

=14*2.5%*250000

=87500

Total Prior service cost =

salary = 135000

Benefit = 75000

new benefit=12500(87500-75000)

Total cost=222500 dollar

+ retirement interest = 115000*20*4%=92000

So total prior service cost = 225000+92000

=317000