Question

The FASB prefers that unrecognized prior service cost be amortized using the

a. double decline balance method
b. straight line method
c. sum of the year digits method
d. years of service method

Answer 1

The FASB prefers that unrecognized prior service cost be amortized using the straight-line method, evenly distributing the cost over the service periods of the employees benefiting from the pension plan amendment.

Step-by-step explanation:

The Financial Accounting Standards Board (FASB) sets standards for financial reporting and accounting, and one aspect they cover is the treatment of unrecognized prior service cost. This cost arises when a company amends its pension plan, resulting in an increase in projected benefit obligation. The preferred method for amortizing unrecognized prior service cost, according to FASB, is the straight-line method. This method evenly spreads the cost over the service periods of the employees who are expected to benefit from the plan amendment.