Methods to Amortize 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 2016, Wolz amended the pension plan; this amendment provides for increased benefits based on services rendered by certain employees in prior periods. Wolz's actuary has determined that the related prior service cost amounts to $140,000. Wolz 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 a. Using the straight-line method, compute the average remaining service life. If required, round your answer to one decimal place.

_______ years

1 b. Using the straight-line method, prepare a schedule to amortize the prior service cost. Enter all amounts as positive numbers.

WOLZ COMPANY

Prior Service Cost

Amortization

2016 - 2019

Total Prior Service Cost Amortization Remaining Prior Service Cost

2016 $_______ $_______ $_____

2017 _______ _________ _______

2018 _______ _________ ______

2019 ________ __________ _______

2 a. Using the years-of-future-service method instead, prepare a set of schedules to determine the amortization fraction for each year. Enter the amortization fraction as a fraction. For example: 3/10.

WOLZ COMPANY

Years of Future Service

Amortization Fractions

Expected Years of Number of Service Years Number of Service Years Number of Service Years Number of Service Years

future service Rendered in 2016 Rendered in 2017 Rendered in 2018 Rendered in 2019 2020

1

2

3

4

Total

Amortization fraction

2 b. Using the years-of-future-service method instead, prepare a set of schedules to determine the amortization of the prior service cost. Enter all amounts as positive numbers.

WOLZ COMPANY

Years of Future Service

Prior Service Cost

Amortization

Total Prior Service Cost Amortization Fraction Amortization Remaining Prior Service Cost

2016 $______ ________ $______ $______

2017 ______ ________ _______ _______

2018 ______ ________ _______ _______

2019 ______ ________ _______ _______

2020 ______ ________ _______ _______