Question 1

Atlantic Corp. has a defined benefit pension plan. At the beginning of Year 1:
- Projected benefit obligation (PBO): $2,000,000
- Plan assets (fair value): $1,800,000
- Service cost for Year 1: $150,000
- Interest cost for Year 1: $120,000
- Actual return on plan assets: $90,000
- Employer contributions: $200,000

What is Atlantic's pension expense for Year 1?

Accepted Answer

Calculate pension expense as: Service cost + Interest cost - Expected return on plan assets + Amortization of prior service cost + Amortization of net loss. Employer contributions affect cash and the funded status but not pension expense.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Including employer contributions in expense calculation, not subtracting return on assets, or adding all components without considering their directional impact

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 2

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