Question 1

Pinnacle Corp. has the following information for its defined benefit pension plan:
- Service cost: $180,000
- Interest cost: $150,000
- Expected return on plan assets: $120,000
- Amortization of prior service cost: $25,000
- Amortization of net loss: $15,000
- Employer contributions: $200,000
- Benefits paid to retirees: $100,000

What is Pinnacle's net pension cost for the year?

Accepted Answer

Calculate net pension cost as: Service cost + Interest cost - Expected return on plan assets + Amortization of prior service cost + Amortization of net loss. Employer contributions and benefit payments don't affect pension expense.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Including employer contributions or benefit payments in expense, adding expected return instead of subtracting it, or omitting amortization components

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 2

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