Wurtz Inc. has sponsored a noncontributory, defined benefit pension plan for its employees since 20X0. Prior to 20×8, cumulative net pension expense recognized equalled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 20X8, is as follows.
- The company has 200 employees. All these employees are expected receive benefits under the plan. The average remaining service life per employee is 12 years for 20X8 and for 20×9.
- The projected benefit obligation amounted to $5,000,000 and the fair value of pension plan assets was $3,000,000. The market-related asset value was also $3,000,000. Unrecognized prior service costs $2,000,000
On December 31, 20X8, the projected benefit obligation and the accumulated benefit obligation were $4,850,000 and $4,025,000, respectively. The fair value of the pension plan assets amounted to $4,100,000 at the end of the year. A 10% settlement rate and a 10% expected asset return rate were used in the actuarial present value computations in the pension plan. The present value of benefits attributed by the pension benefit formula to employee service in 20X8 amounted to $200,000. The employer’s contribution to the plan assets amounted to $775,000 in 20X8. This problem assumes no payment of pension benefits.
a. Prepare a schedule, based on the average remaining lite per employee, showing the prior service cost that would be amortized as component of pension expense for 20X8 and 20X9.
Prior service cost amortization :
*unrecognized prior service cost / Average remaining service life per employee