CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Information regarding the defined-benefit pension plan of Regional Health Services included the following for 2011 ($ in millions):

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.
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