Recognizing Defined Contribution Plan Expenses

Hard Employee Compensation Defined Contribution Plans

XYZ Corporation has a defined contribution plan, in which employees contribute a fixed percentage of their salaries and the company matches a portion of those contributions. As part of their annual report, XYZ Corporation must disclose information about the costs associated with this plan. For the year ended December 31, 2023, the company reported total employee contributions of $1.5 million and company contributions of $750,000.

Given this information, how should the company recognize the expense related to its defined contribution plan in its financial statements?

Recognize total contributions of $2.25 million as employee compensation expense.

Recognize $750,000 as employee compensation expense and $1.5 million as a direct charge against retained earnings.

Recognize total contributions of $1.5 million as employee compensation expense and $750,000 as additional paid-in capital.

Hint

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Correct937

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