When the service method is used for amortizing prior service costs, the amount recognized each year is:
A) In proportion to the fraction of the total remaining service years worked during the year.
B) A constant amount or fixed amount.
C) Prior service cost divided by the average remaining service life of the active employee group.
D) Prior service cost divided by the average estimated retirement age of the currently enrolled employee group.

Question

Quizplus · Accepted Answer

When the service method is used for amortizing prior service costs, the amount recognized each year is in proportion to the fraction of the total remaining service years worked during the year. This means that the annual cost recognized will vary depending on how long the employee is expected to continue working, and will decrease over time as the employee approaches retirement.

When the Service Method Is Used for Amortizing Prior Service