FASB ASC Topic 715 states that prior service cost should be

Question

Quizplus · Accepted Answer

FASB ASC Topic 715 requires that prior service cost be amortized over the expected service period of the affected employees. This is because prior service cost reflects the cost of benefits earned in prior years that will be paid out in the future, and therefore should be recognized as an expense over the period that employees are expected to provide service in exchange for those benefits. Option A does not reflect the proper treatment of prior service cost, as it suggests that the cost should be offset against current service cost, which would not appropriately match expenses with the period in which they are incurred. Option B is partially correct in that prior service cost should be recognized in the period of plan adoption or amendment, but it should then be amortized over the expected service period. Option D, recording prior service cost as a prior period adjustment, is not appropriate as this would result in a nonrecurring gain or loss that would distort the company's financial results for that period.

FASB ASC Topic 715 States That Prior Service Cost Should