ExpertHard1 markMultiple Choice
CPA · Question 28 · Area II: Balance Sheet Accounts
Mountain Corp. has the following information for its defined benefit pension plan at December 31, Year 1:<br/>- Fair value of plan assets: $1,500,000<br/>- Projected benefit obligation: $1,800,000<br/>- Unrecognized prior service cost: $120,000<br/>- Unrecognized net loss: $80,000<br/><br/>What amount should Mountain report as the funded status on its balance sheet?
Mountain Corp. has the following information for its defined benefit pension plan at December 31, Year 1:<br/>- Fair value of plan assets: $1,500,000<br/>- Projected benefit obligation: $1,800,000<br/>- Unrecognized prior service cost: $120,000<br/>- Unrecognized net loss: $80,000<br/><br/>What amount should Mountain report as the funded status on its balance sheet?
Answer options:
A.
$300,000 liability
B.
$100,000 liability
C.
$500,000 liability
D.
$200,000 asset
How to approach this question
Calculate funded status as fair value of plan assets minus projected benefit obligation. Unrecognized prior service cost and net losses are disclosed but don't affect the balance sheet funded status under current standards.
Full Answer
A.$300,000 liability✓ Correct
$300,000 liability
Under ASC 715, the funded status reported on the balance sheet equals the fair value of plan assets minus the projected benefit obligation. When PBO exceeds plan assets, a liability is reported. Unrecognized prior service costs and gains/losses are components of accumulated other comprehensive income, not adjustments to funded status.
Common mistakes
Including unrecognized amounts in funded status calculation, confusing the direction of the liability/asset, or using accumulated benefit obligation instead of PBO
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