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Prior service cost amortization


I do not seem to find my notes on the years-of-service method in calculating and my book is not explaining it well enough. Can someone show me how to do this?

On January 1, 2003, Sunny Incorporated amended its pension plan which caused an increase of $4,800,000 in its projected benefit obligation. The company has 400 employees who are expected to receive benefits under the company's defined benefit pension plan. The personnel department provided the following information regarding expected employee retirements:

Expected Retirements
Number of Employees On December 31
40 2003
120 2004
60 2005
160 2006
20 2007

The company plans to use the years-of-service method in calculating the amortization of unrecognized prior service cost as a component of pension expense.


Prepare a schedule which shows the amount of annual prior service cost amortization that the company will recognize as a component of pension expense from 2003 through 2007.

Solution Summary

The solution explains how to calculate the annual prior service cost amortization.