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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Conceptually, what are the four possible alternative methods for accounting for the prior service cost that arises from pension plan modifications? Which one is required by GAAP?

To determine

State the four possible alternative methods for accounting the prior service cost that arise from the pension plan modifications and also indicate the method that is required by GAAP.

Explanation

Prior service cost: Prior service cost is the cost of retroactive benefits that are granted at the time when the plan is amended or at the time of the initial adoption of the plan.

The following are the four alternative methods that have been suggested to account for the prior service cost that arises from pension plan modifications:

    1. To account for the cost prospectively by expensing in the current and future periods and when these costs arises the liability should not be recorded...

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