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Chapter 20: Q11Q. (page 1161)

In computing the interest component of pension expense, what interest rates may be used?

Short Answer

Expert verified

Interest cost classified under the components of pension expense is a variable deducted from the service cost while ascertaining the value of pension expense during the accounting year.

Step by step solution

01

Interest component

An interest component in the pension expense defines the total amount of interest implied on the outstanding amount of the defined benefit obligation during an accounting year.

02

The interest rates to be used

The assumed rate of interest should be computed to reflect the duration of rates where the total amount of pension benefits can be settled efficiently and effectively by the firm. The rates employed on the fixed income investments that are high in quality can also be used for its computation.

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Most popular questions from this chapter

AMR Corporation (parent company of American Airlines) reported the following (in millions). Service cost $366 Interest on P.B.O. 737 Return on plan assets 593 Amortization of prior service cost 13 Amortization of net loss 154 Compute AMR Corporation’s pension expense.

Using the information in E20-22, prepare a worksheet inserting January 1, 2017, balances, showing December 31, 2017, balances, and the journal entry recording postretirement benefit expense

A headline in the Wall Street Journal stated, “Firms Increasingly Tap Their Pension Funds to Use Excess Assets.” What is the accounting issue related to the use of these “excess assets” through plan terminations?

What is a private pension plan? How does a contributory pension plan differ from a noncontributory plan?

Using the information in E20-13 about Erickson Company’s defined benefit pension plan, prepare a 2017 pension worksheet with supplementary schedules of computations. Prepare the journal entries at December 31, 2017, to record pension expense and related pension transactions. Also, indicate the pension amounts reported in the balance sheet.
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