CFA Practice Question

There are 334 practice questions for this study session.

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:

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
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