Question

Exercise 6-14 Vaughn, 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. 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. $829,000 per year The interest rate to be used is 10%. Click here to view factor tables On the basis of the information above, determine the present value of the pension obligation (liability). (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) The present value of pension obligation (liability) $

Answer 1

Average lenth of time to retirement	=	14 years
Life duration after retirement	=	10 years
Payment made each year	=	8,29,000
Interest rate		10%
PV value from 15th to 25th year @ 10%	=	1.7102
15th year		0.2394
16th year		0.2176
		0.1978
		0.1799
		0.1635
		0.1486
		0.1351
		0.1228
		0.1117
		0.1015
		0.0923
25th year		1.7102
Present value of pension obligation	=	1.7102*8,29,000
		14,17,756