The weighted-average discount rate used in determining General Energy Co.'s actuarial present value of its pension obligation

Question:

The weighted-average discount rate used in determining General Energy Co.'s actuarial present value of its pension obligation is 8.5%, and the assumed rate of increase in future compensation is 7.5%. The expected long-term rate of return on its plan assets is 11.5%. Its pension obligation at the end of Year 6 is $2,212,000, and its accumulated benefit obligation is $479,000. Fair value of its assets is $3,238,000. The service cost for Year 6 is $586,000.

Required:
Predict General Energy Co.'s Year 7 net periodic pension expense given a 10% growth in service cost the amortization of deferred loss over 30 years, and no change in the other assumed rates.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Financial Statement Analysis

ISBN: 978-0078110962

11th edition

Authors: K. R. Subramanyam, John Wild

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