On January 1, 2011, Dibble Co. amended its defined benefit plan resulting in an increase in the projected benefit obligation of $700,000. As of the date of the amendment, Dibble Co. had 100 employees. Ten employees are expected to leave at the end of each of the next ten years. The minimum amount of amortization for prior service cost in 2012 (the second year) is

Question

Quizplus · Accepted Answer

The prior service cost of $700,000 is amortized over the average remaining service period of the employees. With 100 employees and 10 leaving each year, the average service period is 5.5 years. The annual amortization is $700,000 / 5.5 = $127,273. The second year amortization is the same as the first year, $127,273.