Question

Mancuso Corporation amended its pension plan on January 1, 2017, and granted $160,000 of prior service costs to its employees. The employees are expected to provide 2,000 service years in the future, with 350 service years in 2017. Compute prior service cost amortization for 2017.

Short answer

Service years is a term used in an organization that depicts the duration of the employee’s service starting from the joining date.Organizations use the number of service years to determine the service cost in a pension plan.

Step-by-step solution

Firstly, the amount of cost per service year will be calculated.

$\begin{array}{rcl}\mathrm{Cost}\mathrm{per}\mathrm{service}\mathrm{year}& =& \frac{\mathrm{Prior}\mathrm{service}\mathrm{cost}}{\mathrm{Number}\mathrm{of}\mathrm{service}\mathrm{years}}\\ & =& \frac{\$160,000}{2,000}\\ & =& \$28,000\end{array}$

Secondly, the computation of prior service cost amortization for 2017 will be ascertained.

$\begin{array}{rcl}\mathrm{Prior}\mathrm{service}\mathrm{cost}{\mathrm{amortization}}_{2017}& =& \mathrm{Number}\mathrm{of}\mathrm{service}\mathrm{years}\mathrm{in}2017\times \mathrm{Cost}\mathrm{per}\mathrm{service}\mathrm{year}\\ & =& 350\times \$80\\ & =& \$28,000\end{array}$