Question #6
Reading: Reading 9 Employee Compensation - Post-Employment and Share-Based
PDF File: Reading 9 Employee Compensation - Post-Employment and Share-Based.pdf
Page: 2
Status: Correct
Correct Answer: B
Question
The actuarial present value of all future pension benefits earned to date, based on expected future salary increases, is called the:
Answer Choices:
A. pension liability
B. projected benefit obligation (PBO)
C. total projected pension cost
Explanation
The PBO is the actuarial present value (at an assumed discount rate) of all future pension
benefits earned to date, based on expected future salary increases. It measures the value
of the obligation, assuming the firm is a going concern and that the employees will
continue to work for the firm until they retire. Pension cost is periodic and not total
projected. Pension liability is the net amount of PBO and fair value of plan assets.