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How much is the present value of defined benefit obligation

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Reference no: EM132809062

PELLUCID CLEAR Co. agrees to provide lump-sum retirement benefits to employees equal to 6% of final salary for each year of service. Information on an employee is shown below:

Average annual salary level on January 1, 20x1                                                                         ?12,000,000

Average annual salary increase starting January 1, 20x2 and every year thereafter.                              3%

Average service lives before entitlement to retirement benefits (January 1, 20x1 to December 31, 20x5)    5 years

Discount rate per year                                                                                                                  10%

Problem 1: How much is the current service cost in 20x2?

a. 553,492

b. 669,724

c. 618,724

d. 608,840

Problem 2: How much is the present value of the defined benefit obligation on December 31, 20x2?

a. 1,298,437

b. 1,217,680

c. 1,085,710

d. 1,908,117

Reference no: EM132809062

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