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The following information pertains to Havana Corporation's defined benefit pension plan: ($ in thousands) 2021 2022 Beginning balances Beginning balances Projected benefit obligation $ (6,000 ) $ (6,504 ) Plan assets 5,760 6,336 Prior service cost–AOCI 600 552 Net loss–AOCI 720 786 At the end of 2021, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO. What is the 2021 service cost for Havana's plan?A. $678 thousand
B. $594 thousand
C. $702 thousand
D. $606 thousand

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Answer: $648 thousand

Explanation:

When calculating the Service Cost of the following formula is used,

Service cost = PBO Ending + Retire benefits - interest cost - PBO beginning

The Interest cost is based on the Actuary's discount rate which is the current cost if future obligations and is set against the opening balance.

We subtract the opening PBO because the service fee is set for this year.

Plugging in the figures we have,

= 6,504 + 624 - ( 6,000*0.08) - 6,000

= $648

$648 thousand is supposed to be the Service cost but I do not see it in the options.

Perhaps these options are for calculating something else, say the Pension expense?

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