Question

When preparing the journal entry with a plan amendment, if the pension liability exceeds the unrecognized prior service cost:

a.entry is necessary to record the liability.
b. the Additional Pension Liability account is decreased.
c. the excess is debited to Other Comprehensive Income (PSC).
d. the Additional Pension Liability account is credited for the amount of the unrecognized prior service cost.

Answer 1

When the pension liability exceeds the unrecognized prior service cost, the excess is debited to Other Comprehensive Income (OCI).

Step-by-step explanation:

When preparing the journal entry with a plan amendment, if the pension liability exceeds the unrecognized prior service cost, the excess is debited to Other Comprehensive Income (OCI). This is because the excess represents a loss that will be recognized in the future and is not yet included in the pension liability. By debiting OCI, the company acknowledges the loss but does not immediately recognize it as an expense on the income statement.

For example, if the pension liability is $10,000 and the unrecognized prior service cost is $8,000, the excess liability of $2,000 would be debited to OCI.