CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Foxfire Company has a defined benefit pension plan with the following data available as of 12/31/2008:

Projected benefit obligation (PBO),1/1: $100,000
Projected benefit obligation (PBO),12/31: 110,000
Service cost for 2008: 18,000
Interest cost for 2008: 7,000
Actual return on plan assets: 8,000
Expected return on plan assets: 10,000

Assuming there were other pension related costs incurred, the debit to pension expense for 2008 should be for what amount?
A. $15,000
B. $17,000
C. $25,000
Explanation: The pension expense computation includes three components of net pension expense-service cost, interest cost, and the expected return on plan assets which decreases pension expense (assuming the return is positive). Therefore, the debit to pension expense should be for $15,000= 18,000 + 7,000 - 10,000.

User Contributed Comments 5

User Comment
danlan2 Why we are not using actual return on asset?
RNAN expected is used as a way of avoiding large fluxuations due to market upheavals. It is a form of smoothing.
HectorRS2 for pension Asset use Actual (A--A)
for pension obligation use expected
jpducros Why do we have to assume that there were other pension related cost incurred ? Does that impact the reasoning / answer ?
shiva5555 Does the expected return include the actual return or is it in addition?
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