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Chapter 20: Q12Q. (page 1161)

Explain the difference between service cost and prior service cost.

Short Answer

Expert verified

Service cost and prior service cost are considered thevariable of pension expense that affects its amount. These are used while preparing the pension worksheet of an organization.

Step by step solution

01

Introduction

The service cost and the prior service cost are the attributes of the projected defined benefit obligation. These two are responsible for accumulating the pension expense of an organization

02

Difference between service cost and prior service cost

Service cost

Prior service cost

Service cost is a term used by actuaries of an organization to ascertain the value of pension benefits (based on the time value of money) that will be paid in the future.

Prior service costs are those service costs that are defined under the initiation (plan amendment) of the defined pension plan in an organization.

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Most popular questions from this chapter

For 2017, Carson Majors Inc. had pension expense of \(77 million and contributed \)55 million to the pension fund. Which of the following is the journal entry that Carson Majors would make to record pension expense and funding? (a) Pension Expense 77,000,000 Pension Asset/Liability 22,000,000 Cash 55,000,000 (b) Pension Expense 77,000,000 Pension Asset/Liability 22,000,000 Cash 99,000,000 (c) Pension Expense 55,000,000 Pension Asset/Liability 22,000,000 Cash 77,000,000 (d) Pension Expense 22,000,000 Pension Asset/Liability 55,000,000 Cash 77,000,000

Shin Corporation had a projected benefit obligation of \(3,100,000 and plan assets of \)3,300,000 at January 1, 2017. Shin also had a net actuarial loss of $465,000 in accumulated OCI at January 1, 2017. The average remaining service period of Shin’s employees is 7.5 years. Compute Shin’s minimum amortization of the actuarial loss.

What are “liability gains and losses,” and how are they accounted for?

At the end of the current year, Joshua Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)345,000. The amount of the vested benefits for the plan is \(225,000. Joshua has a liability gain of \)8,300 (beginning accumulated OCI is zero). What amount and account(s) related to its pension plan will be reported on the company’s statement of financial position?

Hawkins Corporation has the following balances at December 31, 2017. Projected benefit obligation $2,600,000 Plan assets at fair value 2,000,000 Accumulated OCI (PSC) 1,100,000 How should these balances be reported on Hawkins’ balance sheet at December 31, 2017?
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