A company's defined-benefit pension plan had a projected benefit obligation (PBO) of $380,000 on January 1, Year 1. During Year 1, pension benefits paid were $70,000. The settlement rate for the plan for Year 1 was 12%. Service cost for the year was $109,000. Plan assets (fair value) increased during the year by $50,000. What was the PBO at December 31, Year 1?

Question

Quizplus · Accepted Answer

The PBO at the end of the year is calculated as: Beginning PBO + Service Cost + Interest Cost - Benefits Paid. Interest Cost = Beginning PBO * Settlement Rate = $380,000 * 12% = $45,600. Therefore, PBO at December 31, Year 1 = $380,000 + $109,000 + $45,600 - $70,000 = $464,600.

A Company's Defined-Benefit Pension Plan Had a Projected Benefit Obligation