On 12/31/20 the Diaz company started a defined benefit pension plan. On that same date, the company granted retroactive benefits to its 200 employees. The actuaries estimated the cost of these benefits to be $300,000. There are currently two methods to amortize unrecognized past service costs (UPSC):

The first option (Option A), favored by the FASB, is the “years of service” method. This method provides a total of 600 years of service for D161az companies. (Note: this was the method discussed in the class PowerPoint notes, in the classroom instead of 600 it was 35)

The Second Option (Option B) is to use straight-line amortization based on the employees' average number of years of service remaining (Note: this was the method used in the cases discussed in class).

If as of 12/31/22 (two years after the amendment) employees have already retired {RETIREE}, which of the two options will generate lower earnings per share in 2022?

Answer rating: 100% (QA)

Option A Number of years of service 600 Number of employees 200 Average years of servi... View the full answer