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The total periodic pension cost = service cost + interest cost − actual return on plan assets = $450,000 + $85,000 − $50,000 = $485,000.

Since the differences in cash flow and economic pension expense are considered material, for analysis purposes we should consider reclassifying the difference from operating activities to financing activities in the cash flow statement.

The employer’s contribution was only $215,000. Since the total periodic pension cost exceeds the cash flow, the difference, net of tax, is treated as a borrowing in the cash flow statement for analytical purposes. Given a tax rate of 30%, $189,000 is reclassified from operating cash flow to financing cash flow [($485,000 total periodic pension cost − $215,000 employer contribution) ((1 − 30% tax rate)].