Question

What three items affect both the net pension liability and pension expense?

Answer 1

The three items that affect both the net pension liability and pension expense are the discount rate, expected return on plan assets, and service cost.

Step-by-step explanation:

There are three items that affect both the net pension liability and pension expense:

1. The discount rate: This is the interest rate used to determine the present value of future pension payments. A higher discount rate will result in a lower net pension liability and pension expense, while a lower discount rate will increase the liability and expense.
2. The expected return on plan assets: This is the anticipated return on the investments made with the pension plan's assets. A higher expected return will decrease the net pension liability and pension expense, while a lower expected return will have the opposite effect.
3. The service cost: This represents the increase in the present value of the pension benefits due to employee service during the period. It is influenced by factors such as employee wages, age, and years of service.

These three items play a significant role in the calculation of the net pension liability and pension expense.