2: Short Answers Emerald City Inc., the leading producer of St. Patrick's Day supplies, begins a defined benefit pension program for its sole employee, Jade, on January 1, 2007. In retirement Jade will receive 2.5% of her final salary for each year she has worked for Emerald City. Jade has worked at Emerald city for 6 years prior to the plan's inception and is expected to work an additional 15 years before retirement. She is expected to live 10 years after she retires. When initiated, the pension plan originally only gives credit for years worked after the plan's inception. Emerald City uses a discount rate of 8% and a compensation rate of 4% for the pension plan. Jade's starting salary is $50,000 (note: this is expected to grow for all 15 years). 1. What is the service cost for 2007, the first year the plan is in effect? (2 points) 2. What is the PBO on December 31, 2007, one year after the plan is started? (2 points) 3. If Emerald City amends the plan on December 31, 2007, to give Jade credit for the six years she worked prior to the plan's inception, would this affect the PBO? If so, how much? (2 points) 4. If Emerald City increases its discount rate at the end of 2007, will this affect its reported service cost? Will it affect its reported PBO? (Answer Yes or No to these questions - no calculations needed) (2 points)