Employees may be granted additional pension benefits for services performed in periods prior to the initiation or amendment of a plan. The cost associated with these additional benefits is (enter the number that represents the correct answer)

1. added to Plan Assets.
2. prior service cost. Its balance is not reported on the balance sheet but disclosed off-balance sheet.
3. subtracted from Plan Assets.
4. prior service cost. Its balance is reported in Stockholders Equity.