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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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List and briefly define the five components of pension expense.

To determine

Indicate the five components of pension expense and briefly explain them.

Explanation

Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.

The following are the five components of pension expense:

    1. Service cost.

    2. Interest cost.

    3. Expected return on plan assets.

    4. Amortization of prior service cost.

    5. Gain or loss.

1. Service cost:

Service cost is the present value of benefits that are attributed by the pension benefit formula for the service rendered by employees during the current period.

2. Interest cost:

The increase in the projected benefit obligation due to the passage of time is referred as the interest cost component of the net pension cost for a period. The company would calculate the interest cost component by multiplying the beginning projected benefit obligation with the assumed discount rate.

3. Expected return on plan assets:

The expected increase in the plan assets due to investing activities is the expected return on plan assets...

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