Question

The Accumulated Other Comprehensive Income (G/L) account is amortized only if it exceeds 10 percent of the larger of the beginning balances of the projected benefit obligation or the market-related plan assets value. a)true b)false

Answer 1

The statement presented about the amortization of the Accumulated Other Comprehensive Income (AOCI) is false. AOCI refers to entries in the equity section of the balance sheet, and amortization occurs through a specific mechanism under pension accounting, following the 'corridor approach'.

Step-by-step explanation:

The statement regarding the Accumulated Other Comprehensive Income (AOCI) is false. AOCI is a component of shareholders' equity that includes unrealized gains and losses that are not included in net income. The issue of amortization typically arises in relation to pension accounting. Under US GAAP, specifically ASC Topic 715 related to pension and other postretirement benefits, entities are required to recognize changes in the funded status of a defined benefit pension plan in the other comprehensive income (OCI) and then to amortize portions of these changes over time into net income. However, this amortization concerns actuarial gains and losses, past service costs, or net transition assets of liabilities that must be recognized if they exceed the 'corridor,' which is defined as 10 percent of the greater of the plan's projected benefit obligation (PBO) or the value of plan assets. This process is known as the 'corridor approach'.