Question

When a company amends a pension plan, for accounting purposes, prior service costs should be Select one: a. treated as a prior period adjustment because no future periods are benefited. b. recorded in other comprehensive income (PSC). c. amortized in accordance with procedures used for income tax purposes. d. reported as an expense in the period the plan is amended. Clear my choice

Answer 1

Option B

When a company amends a pension plan, for accounting purposes, prior service costs should be recorded in other comprehensive income (PSC).

Explanation:

The accounting for pensions can be considerably complicated, particularly concerning established benefit plans.  In this kind of plan, the employer contributes a deliberate periodic payment to workers subsequent they retire. If a plan revision lessens plan benefits, register it in separate comprehensive income on the date of the amendment.

This sum is then balanced upon any prior service cost residing in incorporated other comprehensive income. Any extra amount of the credit is then amortized practicing the same methodology simply recorded for prior service costs.