Question

The interest component of pension expense in the current period is computed by multiplying the settlement rate by the beginning balance of the projected benefit obligation.

a)true b)false

Answer 1

The interest component of pension expense is calculated using the discount rate and the beginning balance of the accumulated benefit obligation, not the projected benefit obligation.

Step-by-step explanation:

The statement is false. The interest component of pension expense is calculated by multiplying the discount rate by the beginning balance of the accumulated benefit obligation, not the projected benefit obligation.

The discount rate is used to discount future pension obligations to their present value, and the accumulated benefit obligation represents the present value of the vested and non-vested benefits earned by employees.

Therefore, the correct formula for calculating the interest component of pension expense is: Interest Component = Beginning Balance of Accumulated Benefit Obligation x Discount Rate.