Question #35 - Reading 9 Employee Compensation - Post-Employment and Share-Based

Reading: Reading 9 Employee Compensation - Post-Employment and Share-Based

PDF File: Reading 9 Employee Compensation - Post-Employment and Share-Based.pdf

Page: 14

Status: Incorrect

Correct Answer: A

Your Answer: C

Shared Context

- Current U.S. GAAP pension accounting standards require public companies to report which of the following in the balance sheet? A) The expected return on plan assets. B) The pension liability adjusted for unrecognized items. C) The funded status of the plan.

Question

As of December 31st, 2007, the fair value of plan assets was $21 million. For this question only, assume that the sum of the unrecognized prior service cost and the unrecognized actuarial losses equals $1.5 million. Calculate the amount attributable to Midwest's pension plan as of December 31st, 2007 that must be reported on the balance sheet under U.S. GAAP.

Answer Choices:

A. $2.0 million

B. −$2.0 million

C. −$500,000

Explanation

The funded status is the difference between the PBO and the fair value of plan assets as of the reporting date. For Midwest's plan, $21,000,000 − 23,000,000 = −$2,000,000. PBO figure is already given – and it includes all unrecognized items (and hence need not be adjusted).

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