If a pension plan amendment is adopted and retroactive benefits are granted to employees, the amount of the prior service cost at the date of grant is accounted for

A) as an intangible asset and liability that are recognized on the plan amendment date
B) as a prior period adjustment for the total amount of the prior service cost that is reported on the statement of retained earnings
C) as the total amount of the prior service cost that is recognized as an expense on the current period's income statement
D) initially as an unamortized amount to be included in the computation of pension expense over future periods

Question

Byron Coleman · Accepted Answer

Final Answer : D, Explanation :  When retroactive benefits are granted to employees, the prior service cost is accounted for as an unamortized amount initially. This unamortized amount is included in the computation of future periods' pension expense through the amortization process. This is in compliance with the Generally Accepted Accounting Principles (GAAP) that require recognition of the prior service cost as an expense over the employees' remaining service period. Therefore, the best choice is D.

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