Explain corridor amortization and operating leese?

Question

I have an accounting test on Monday. However, I have two questions that do not understand.
first, What's corridor amortization, including pension and postreirement benefits issues.
Second, contrast the lessee accounting for an operating lease with the lessor accounting for an operating lease. What does the lessee record? What does the lessor record?
Thank you for your help.

Answer 1

Corridor amortization is a compromise between immediate recognition of gains and losses and permanent deferral.

Read the outline at the link for lots of good information.

http://www.htcacademic.mnscu.edu/faculty/anderson-c/Interm%20II/IMChapter%2017.htm

Answer 2

Corridor Amortization

Answer 3

Qn 1 Corridor amortization
Assume a company has an unrecognized loss at the beginning of 2007 of $106,000. Also, as of January 1, 2007, the company has a projected benefit obligation of $819,000, and a market related asset value (fair value of plan assets) of the pension plan assets of $455,000.

The company is required to use the Corridor approach to determine the amount of gains and losses to recognize (amortize) in pension expense each period. The corridor approach is a technique used to reduce the amounts of gains and losses to be recognized as an adjustment to pension expense.

It requires recognition of certain gains and losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related asset value. The 10 percent is referred to as the corridor. Any excess over the 10 percent should be amortized over the average remaining service period of active employees expected to participate in the plan. This amount represents the minimum amount a company can recognize.

If the gains or losses are not in excess of 10 percent of the appropriate amount, then no gain or loss may be recognized.
The purpose of the corridor is to reduce the volatility of the pension expense. (The 2 sites below give you a fuller explanation)

Qn 2
In an operating lease, title does not transfer to the lessee, it remains with the lessor, so the asset still belongs to the lessor. The lessee expenses the op'g lease payments to the income statement as and when they're incurred.
In the lessee's books:
Dr Operating lease expense
Cr Cash

In the lessor's books:
Dr Cash
Cr Operating lease revenue.
In addition it has to do the usual with fixed assets, like depreciating them monthly.