When the Service Method Is Used for Amortizing Prior Service

question 226

Multiple Choice

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.

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Definitions:

Cost of Goods Sold

The direct financial burdens of producing the commodities a company sells, involving materials and labor input.

Work in Process Inventories

Goods that are partially completed in the manufacturing process but not yet ready for sale.

Standard Cost System

A cost accounting system that assigns costs to products based on predetermined standards for materials, labor, and overhead.

Work in Process

Inventory consisting of items that are in the process of being produced but are not yet completed.