- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 12. Employee Compensation: Post-Employment and Share-Based
- Subject 2. Accounting for Defined Benefit Plans
CFA Practice Question
Information regarding the defined-benefit pension plan of Regional Health Services included the following for 2011 ($ in millions):
Service cost: 240.
Interest cost: 170.
Actual and expected return on plan assets: 150.
Amortization of unrecognized net gain: 20.
Prior service cost: none.
Employer contributions to the pension plan (end of year): 200.
Prepaid pension cost, Jan 1. (debit balance): 15.
Service cost: 240.
Interest cost: 170.
Actual and expected return on plan assets: 150.
Amortization of unrecognized net gain: 20.
Prior service cost: none.
Employer contributions to the pension plan (end of year): 200.
The accumulated benefit obligation was less than the fair value of plan assets at December 31, 2011. What should Regional report in its balance sheet at December 31, 2011, for prepaid (accrued) pension cost?
A. $25 million liability.
B. $95 million liability.
C. $15 million asset and $80 million liability.
Explanation: The pension expense for 2011 is $240 ($240 + 170 - 150 - 20), and the contribution is $200. The accrued pension cost is thus credited for $40, offsetting the beginning $15 debit balance. [in millions].
User Contributed Comments 3
| User | Comment |
|---|---|
| dblueroom | good question... with the prepaid pension expense balance |
| rhardin | Why don't the actual return on plan assets come into play? |
| Hishy | Because it's not used to calculate pension expense. Anyway, it was the same amount as expected return on assets. |