Question #31
Reading: Reading 9 Employee Compensation - Post-Employment and Share-Based
PDF File: Reading 9 Employee Compensation - Post-Employment and Share-Based.pdf
Page: 12
Status: Correct
Correct Answer: A
Question
Which of the following statements regarding the projected benefit obligation (PBO) and the value of the pension plan assets is most accurate?
Answer Choices:
A. If the PBO and the plan assets are the same, then nothing needs to be reported on the balance sheet
B. Plan amendments during the year generally result in a decrease of the PBO at the end of the year
C. The fair value of plan assets is increased by the amount of the expected return on assets
Explanation
Neither the PBO nor the plan assets are separately reported on the balance sheet. The
funded status is the difference in the PBO and the plan assets. If the PBO exceeds the plan
assets, the difference is reported as a liability. If the plan assets exceed the PBO, the
difference is reported as an asset. If the amounts are the same, then neither a liability nor
asset needs to be reported.
Plan amendments (i.e. additional benefits provided that increase the amount of the
employer's obligation to plan participants) generally result in an increase of the PBO.
The fair value of plan assets at the beginning of the period is increased by the actual
return on plan assets as well as any employer contributions. It is reduced by the amount
of benefits paid.