Reading 10 Practice Problems 9&10

CFA Level II FRA
#1

Reading 10 Practice Problems 9&10
Could anybody tell me when the answer calculates net interest expense (42000+120-39000)*7%, what does 120 stand for? why?

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#2

Past service costs, which increase the value of the beginning pension liability (as they should: they were earned in the past).

#3

Thanks!
I thought “net interest expense or income, calculated by multiplying the net pension liability or net pension asset by the discount rate used to measure the pension liability.” means multiplying he difference between the beginning of PBO and plan asset by the discount rate. So it should also consider past service cost.

#4

Yes: past service costs increase the beginning pension liability, so you have to add them in before you compute interest cost.

You’re quite welcome.