Question

During 2020, mdf Corporation's actuaries decreased the discount rate used to calculate pension obligation from 4.3% to 3.8%
The effect on the company's pension expense for the year and pension obligation balance at year end is:
1) Inerease pension expense, decrease pension obligation
2) Decrease pension expense, decrease pension obligation
3) Inerease pension expense, increase pension obligation
4) Decrease pension expense, increase pension obligation

Answer 1

Answer:

Option C is corrrct.

i.e. increase in pension expense, increase pension obligatio.

Explanation: Discount rate is rate to we use value the current cost of future value obligations.

Every time we decrease tue discount rate, it derives up the value of pension benefits and increase current service cost that lead to increase in pension's future value obligatios.

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