ExpertHard1 markMultiple Choice
CPA · Question 49 · Area II: Balance Sheet Accounts
Valley Corp. has a defined benefit pension plan with the following changes during the year:<br/>- Projected benefit obligation, beginning: $2,200,000<br/>- Service cost: $180,000<br/>- Interest cost: $132,000<br/>- Benefits paid: $95,000<br/>- Actuarial loss: $45,000<br/><br/>What is the projected benefit obligation at year-end?
Valley Corp. has a defined benefit pension plan with the following changes during the year:<br/>- Projected benefit obligation, beginning: $2,200,000<br/>- Service cost: $180,000<br/>- Interest cost: $132,000<br/>- Benefits paid: $95,000<br/>- Actuarial loss: $45,000<br/><br/>What is the projected benefit obligation at year-end?
Answer options:
A.
$2,417,000
B.
$2,462,000
C.
$2,372,000
D.
$2,507,000
How to approach this question
Calculate ending PBO as: Beginning PBO + Service cost + Interest cost + Actuarial losses - Actuarial gains - Benefits paid. Service cost and interest cost increase PBO; benefits paid decrease PBO; actuarial losses increase PBO.
Full Answer
B.$2,462,000✓ Correct
The projected benefit obligation rollforward includes: beginning balance, plus service cost (current year benefit accrual), plus interest cost (time value increase), plus/minus actuarial gains/losses (assumption changes), minus benefits paid to retirees. Actuarial losses increase the PBO.
Common mistakes
Wrong direction for actuarial gains/losses, adding benefits paid instead of subtracting, or omitting components of the PBO rollforward
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