Analyzing and Interpreting Pension Disclosures—PBO and Funded Status YUM! Brands Inc. discloses the following pension footnote in its 10-K report.

Pension Benefit Obligation ($ millions) 2015 Change in benefit obligation Benefit obligation at beginning of year. . . . . . . . . . . . . . . . . . . . . . $1,301 Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Plan amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)

Special termination benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50)

Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16)

Actuarial (gain) loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (196)

Administrative expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)

Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . $1,134

a. Explain the terms “service cost” and “interest cost.”

b. How do actuarial losses arise?

c. The fair value of YUM!’s pension assets is $1,004 million as of 2015. What is the funded status of the plan, and how will this be reflected on YUM!’s balance sheet?