Skysong, Inc. is a furniture manufacturing company with 50 employees. Recently,

Question

Skysong, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its compensation plan. The plan will start on January 1, 2017. Each employee covered by the plan is entitled to a pension payment each year after retirement. As required by accounting standards, the controller of the company needs to report the pension obligation (liability). On the basis of a discussion with the supervisor of the Personnel Department and an actuary from an insurance company, the controller develops the following information related to the pension plan.

The interest rate to be used is 12%.

On the basis of the information above, determine the present value of th pension obligation (liability).

The present value of pension obligation (liability) $_________

Average length of time to retirement 14 years Expected life duration after retirement 10 years Total pension payment expected each year after retirement    for all employees. Payment made at the end of the year. $806,200 per year

Explanation / Answer

ans) Formula

PV - OA = R ( PVF - OAn,i )   

PV - OA = 806200 ( PVF - OA 24-14, 12% )

PV - OA = 806200 ( 7.7843 - 6.6282)

PV - OA = 806200 X 1.1561

= 932,048

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