Question

A company provides a defined benefit pension plan for all of its employees. The fair value of the plan assets at year-end is $45,000,000. The values of the accumulated benefit obligation and projected benefit obligation at year end are $46,000,000 and $60,000,000, respectively. The company expects to make benefit payments totaling $2,000,000 next year. What amount should the company report in the year-end financial statements as a liability in connection with the defined benefit pension plan

Answer 1

Answer:

$15,000,000

Explanation:

The amount, related to the defined benefit plan that the company should report in the year-end financial statements as a liability in connection with the defined benefit pension plan in the balance sheet is the net off Projected Benefit Obligation and Fair value of the plan assets.

Hence, Projected benefit obligation at year end $60,000,000 - The fair value of the plan assets at year-end is $45,000,000 is $15,000,000

The firm has a funded plan and reports a $15,000,000 net assets

Answer 2

Answer:

pension liability of $15 million

Explanation:

in order to define if the company's pension plan is an asset or a liability, you must subtract the projected benefit obligation from the current fair value of the plan:

fair value - projected benefit obligation = $45,000,000 - $60,000,000 = -$15,000,000

Since the result is negative, then the benefit pension plan must be recorded as a pension liability of $15 million.