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

Question

Oriole, 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 10%.


On the basis of the information above, determine the present value of the 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. $820,700 per year

Explanation / Answer

Solution:-

Explanation:-

PV - OA = R (PVF - OA n , i)

PV - OA = $ 820,700 (PVF - OA 24 - 14 , 10%)

PV - OA = $ 820,700 (8.98474 - 7.36669)

PV - OA = $ 820,700 * 1.61805

PV - OA = $ 1,327,934

Note:- Final answer rounded to 0 decimal places.

Please Rate or comment if you have any doubt regarding this solution.

The present value of pension obligation (liability) $ 1,327,934

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