Pension Accounting

Question 1

Total Periodic Pension Cost

Answer 1

= employer contributions - (ending funded status - beginning funded status)

Question 2

Current Service Cost

Answer 2

PV of benefits earned by the employees during the current period. It is the increase in the PBO that is the result of the employees working one more period. Recognized immediately on IS.

Question 3

Interest Cost

Answer 3

The increase in the PBO due to the passage of time. Calculated by multiplying the PBO at the beginning of the period by the discount rate. Immediately recognized as a component of pension expense.

Question 4

Pension Discount Rate

Answer 4

The interest rate used to compute the present value of the benefit obligation and the current service cost component of pension expense.

Question 5

How to improve reported results

Answer 5

Increase the discount rate, reduce the compensation growth rate, or (under GAAP) increase the expected return on plan assets.