Question

Income smoothing is the concept of reducing the period-to-period fluctuations in revenues and expenses in order to decrease the variability of reported income. GAAP generally does not support income smoothing; however, a friend of yours, after studying GAAP, claims, “The use of expected returns and the corridor approach in pension accounting results in income smoothing."
Required:
Describe the methods by which GAAP avoids year-to-year fluctuations in the amount of pension expense.


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  • CreatedOctober 05, 2015
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