Question

Testbank Multiple Choice Question 30 The projected benefit obligation is the measure of pension obligation that is not sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense:

A. requires the longest possible period for funding to maximize the tax deduction.
B. is required to be used for reporting the service cost component of pension expense.
C. requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels.
D. is not sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense.

Answer 1

B) is required to be used for reporting the service cost component of pension expense.

Step-by-step explanation:

The projected benefit obligation (PBO) measures an estimate of the amount of money that a company will need to pay for its future pension liabilities. The PBO must be adjusted every year since the company keeps operating, and should keep operating in the foreseeable future.

The interest rate earned by the PBO should reflect the rate at which pension benefits could be settled. The accumulated benefit obligations are calculated based on the time of service of the employees and their existing salaries.