Question

Which of the following would not be a component of pension expense?

1) prior service cost amortization
2) interest cost
3) deferred compensation
4) return on assets

Answer 1

Deferred compensation is not a component of pension expense. Three components of pension expense are service cost, interest cost, and prior service cost amortization.

Step-by-step explanation:

The component of pension expense that would not be included is deferred compensation.

Pension expense is the cost of providing a pension plan to employees. The three components of pension expense are:

1. Service cost: The current cost of providing pension benefits to employees for their services rendered during the period.
2. Interest cost: The interest on the projected benefit obligation that accrues for the period.
3. Prior service cost amortization: The recognition of costs related to making changes to the pension benefits for past services rendered by employees.

The return on assets is not a component of pension expense, but rather the earnings generated from the investments made by the pension plan.