[Anonymous]

The answer to the question below does not make sense to me. It references that “Service cost is a component of compensation expense, not net periodic pension cost.”. Isn’t Service Cost the “S” in PRIUS? (this is NINJA’s acronym for the component of net periodic pension cost. can somebody clarify?

Service cost $160,000
Actual and expected gain on plan assets 35,000
Unexpected loss on plan assets related to
a disposal of a subsidiary 40,000
Amortization of prior service cost 5,000
Annual interest on pension obligation 50,000

What amount should Lee report as a separate line item titled “net periodic pension cost” in its current year-end income statement?

Service cost is a component of compensation expense, not net periodic pension cost. To compute the net periodic pension cost, subtract the expected rate of return on plan assets, add the amortization of prior service cost, and add the interest cost on the pension obligation:

$(35,000) + $5,000 + $50,000 = $20,000

[jeff]

Service cost is still part of pension expense cumulatively, but it's presented on the Income Statement as compensation expense as part of Operating Income.

The new rule prevents companies from hiding service cost (the amount that current employees contribute to future pension expense) below operating income.

Exam Day: If you see net periodic pension cost and the show Service Cost … they are testing to see if you know to leave it out.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

When did that new rule come into play? Just want to make sure I am not studying outdated information

[jeff]

January 2018

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Author]

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