Merciful Industries Has a Beginning PBO Balance of $500,000 and a Settlement

question 85

Multiple Choice

Merciful Industries has a beginning PBO balance of $500,000 and a settlement rate of 7%. As a result of an amendment to the current union contract, there are prior service costs of $46,500. What is the journal entry to record amortization of the prior service costs for the second year, assuming that the company uses a 5-year amortization period?

• A) \[\begin{array} { | l | r | r | }
• \hline \text { Pension Expense } & 3,255 & \\
• \hline \text { Projected Benefit Obligation } & & 3,255 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | r | r | }
• \hline \text { Pension Expense } & 35,000 & \\
• \hline \text { Other Comprehensive Income } & & 35,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | r | r | }
• \hline \text { Other Comprehensive Income-Prior Service Costs } & 9,300 & \\
• \hline \text { Projected Benefit Obligation } & & 9,300 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | r | r | }
• \hline \text { Pension Expense } & 9,300 & \\
• \hline \begin{array} { l }
• \text { Other Comprehensive Income-Prior Service } \\
• \text { Costs }
• \end{array} & & \\
• \hline
• \end{array}\]

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Definitions:

Customer Satisfaction

The measure of how well a company's products or services meet or exceed customer expectations.

Project Management

The utilization of techniques, abilities, expertise, and experience to meet particular project goals according to the project acceptance standards within established boundaries.

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production.

Fixed Costs

Costs that do not vary with the level of output or production, such as rent, salaries, and insurance premiums.