Pension Plan Contribution and Actuarial Gains Reporting

Very Hard Employee Compensation Post-employment Benefits

XYZ Manufacturing Company has a defined benefit pension plan for its employees. The plan’s benefits are determined based on an employee’s salary and years of service. At the end of the reporting period, the company reviews its pension plan obligations and recognizes the net defined benefit liability on its balance sheet.

The company uses a discount rate of 4% to value its future pension obligations. In addition, XYZ Manufacturing contributes a total amount of $500,000 during the year to fund the pension plan, of which $350,000 is classified as a service cost for the current year while the remaining amount is attributed to the past service cost adjustment made last year due to changes in the plan.

The financial statements also disclose that the total actuarial gains recognized in the current year amount to $100,000. How should XYZ Manufacturing report and disclose the impact of the pension contribution and actuarial gains in its financial statements?

The company should recognize $350,000 as an expense in the income statement and report a reduction of pension liability by $100,000 in the balance sheet.

The company should recognize $500,000 as an expense in the income statement and disclose $100,000 as a component of other comprehensive income.

The company should recognize $350,000 as an expense in the income statement, $100,000 in other comprehensive income, and $50,000 as a reduction in pension liabilities.

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