pearsall company's defined benefit pension plan had a pbo of $273,000 on january 1, 2021. during 2021, pension benefits paid were $44,000. the discount rate for the plan for this year was 8%. service cost for 2021 was $86,000. plan assets (fair value) increased during the year by $48,000. the amount of the pbo at december 31, 2021, was:

The plan's discount rate for this year was 8%. The cost of services in 2021 was $86,000. During the year, the fair value of the plan's assets rose by $48,000. The PBO as of December 31, 2021, was $336,840.

A pension is a defined benefit plan.

Employees who participate in defined benefit plans, also called pension plans, are assured retirement benefits. Employers provide most of the funding for defined benefit plans, and retirement payouts are determined by a predetermined formula that considers an employee's salary, age, and length of service.

What variables affect the PBO for pension benefits?

The PBO is calculated by taking into account a variety of variables, such as anticipated increases in employee pay, which will raise the amount of pension liability. Along with the amount of service previously rendered by employees, the computation also takes into account an estimate of employee mortality rates.

The amount of PBO on December 31st is calculated as follows:

PBO on Jan 1, 2021, = $273,000

add: Service cost = $86,000

add: interest= $21,840

less: pension benefits that have been paid = ($44,000)

now, we have to solve the above calculation

we get, PBO at dev 31 = $336,840

Note: interest is calculated by multiplying the PBO amount on Jan 1, 2021, with the rate of interest given.

Thus, $273,000 multiply 8% = $21,840

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