- CFA Exams
- CFA Exam: Level II 2021
- Study Session 5. Financial Reporting and Analysis (1)
- Reading 14. Employee Compensation: Post-Employment and Share-Based
- Subject 3. Analysis of pension plan disclosures
CFA Practice Question
Pinehurst Corporation has a qualified defined benefit plan in which they annually fund the net pension expense within two months of year-end. The following information is available at 12/31/2011:
Net pension expense for 2011: 300,000.
Unrecognized prior service cost (12/31) 150,000.
Accumulated benefit obligation (12/31) 560,000.
Fair value of plan assets (12/31) $600,000
Net pension expense for 2011: 300,000.
Unrecognized prior service cost (12/31) 150,000.
Accumulated benefit obligation (12/31) 560,000.
How much should appear on Pinehurst's 12/31/2011 balance sheet as a pension liability?
Correct Answer: $300,000
Since Pinehurst has not yet funded 2011 pension expense, this is the amount that is to be reported as a pension liability at 12/31. No additional minimum liability is recognized since the fair value of plan assets exceeds the ABO.
User Contributed Comments 3
| User | Comment |
|---|---|
| PaulChia | whay does unrecognized prior service cost not affect the pension liability? Is this not amortized? |
| ngeorge | Since they have been funding the pension expense every year, the prior Prepaid Pension Cost is $0. For 2011, they apparently didn't fund (not clearly described) so the prepaid is the $300k pension expense. Unrecognized prior service cost is already included in net pension expense so that is just extra data. |
| CFAJ | thanks ngeorge |