Recording pension expense causes the net pension liability/asset to change by the service cost, the interest cost, and the expected return on plan assets. Any amortization amounts included in the expense will reduce the accumulated other comprehensive income balances being amortized; for example, net loss—AOCI and prior service cost—AOCI. Similarly, the plan assets are increased by the annual cash investment. New losses and gains (as well as any new prior service cost should it occur) are recognized as other comprehensive income. The service cost is reported in the income statement separately from the other (non-service cost) components of the expense.
Knowledge Check 01
Which of the following statements are correct with regard to the reporting of pension expense?
Note: Select all that apply.
Check All That Apply
All components of pension expense, except for service cost, are itemized in the disclosure notes.
All components of pension expense, except for service cost, are itemized in the disclosure notes.
All components of pension expense, except for service cost, are combined and reported in the income statement outside the subtotal of income from operations.
All components of pension expense, except for service cost, are combined and reported in the income statement outside the subtotal of income from operations.
The excess of service cost over the other components is reported as a net pension liability in the balance sheet.
The excess of service cost over the other components is reported as a net pension liability in the balance sheet.
The service cost component of pension expense is combined with compensation costs arising from services rendered by the employees.
The service cost component of pension expense is combined with compensation costs arising from services rendered by the employees.