Pension expense typically consists of five components. Review Exhibit 8.11, which lists the components, and answer the

Question:

Pension expense typically consists of five components. Review Exhibit 8.11, which lists the components, and answer the following questions related to each component:
1. Service cost - Is it possible for the service cost component to reduce pension expense for the year? Explain your answer.
2. Interest cost - Is it possible for the interest cost component to reduce pension expense for the year? Explain your answer.
3. on plan assets - requires firms to reduce pension expense each year by the expected, not the actual, return on investments. Discuss the logic employed by policymakers in reaching this decision.
4. Amortization of prior service cost - Define prior service cost, including providing an example of a plan change that would generate an amount labeled prior service cost.
5. Amortization of actuarial gains and losses - Describe the circumstances that give rise to actuarial gains and losses.
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