Question

Unrecognized gains and losses that relate to the computation of pension expense should be

a. recorded currently as an adjustment to pension expense in the period incurred
b. recorded currently and in the future by applying the corridor method which provides the amount to be amortized
c. amortized over a 15 year period
d. recorded only if a loss is determined

Answer 1

Unrecognized gains and losses on pension expense should be recorded using the corridor method which spreads the amount to be amortized over future periods.

Step-by-step explanation:

Unrecognized gains and losses that relate to the computation of pension expense should be recorded in a specific way according to pension accounting rules. The correct answer to how these should be treated is b. recorded currently and in the future by applying the corridor method which provides the amount to be amortized.

The corridor method limits the recognition of gains and losses to an amount that exceeds a 'corridor' which is defined as 10% of the greater of the plan assets or plan liabilities at the beginning of the year. Any excess is amortized over the average remaining service period of the employees. Therefore, gains and losses are not immediately recognized as pension expense in the period incurred, nor are they amortized over a fixed 15-year period or recorded only if a loss is determined.