Asked by Emanuel Holesome on Jun 20, 2024
Verified
The interest cost component of pension expense in year two is determined by multiplying the projected benefit obligation at the beginning of year two by the discount rate.
Interest Cost Component
The portion of pension expense that represents the increase in the projected benefit obligation due to the passage of time.
Projected Benefit Obligation
An estimate of the total amount an entity is obligated to pay in pension benefits, based on expected future salary increases.
Discount Rate
The interest rate used to discount future cash flows to present value, often used in the calculation of net present value or investment appraisals.
- Apprehend the central aspects and calculations involved in pension expense for defined benefit plans.
- Recognize the impact of actuarial assumptions on pension obligations and expenses.
Verified Answer
NM
Noelle MoodleyJun 27, 2024
Final Answer :
True
Explanation :
The interest cost component of pension expense in year two is calculated by multiplying the projected benefit obligation at the beginning of year two by the discount rate. This is because the interest cost represents the increase in the projected benefit obligation due to the passage of time. The discount rate is used to calculate the present value of the projected benefit obligation, and so is also used to calculate the interest cost.
Learning Objectives
- Apprehend the central aspects and calculations involved in pension expense for defined benefit plans.
- Recognize the impact of actuarial assumptions on pension obligations and expenses.