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 Topic: Pension-help please ( Topic Closed)
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cpawannabe09
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| Posted: 27 Nov 2010 at 11:43 | IP Logged
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The following information pertains to the defined benefit pension plan of the Cabot Corporation as of December 31, Year 11 and Year 12:
12/31/Year 11 12/31/Year 12
Projected benefit obligation $250,000 &nbs p; $285,000
Fair value of plan assets 200,000 $295,000
The pension plan had unrecognized prior service cost of $50,000 and unrecognized net gain of $30,000 at December 31, Year 11. Service cost for Year 12 was $30,000. The discount rate was 8% and the expected return on plan assets was 10% for both Year 11 and Year 12. Cabot's employees have an average remaining service life of 10 years. For the last three years, Cabot has made benefit payments of $15,000 per year. The company expects to pay the same amount in Year 13. Cabot's effective tax rate is 30%.
How would the funded status of Cabot's pension plan be reported on December 31, Year 11?
A. NONCURRENT ASSET 10k
B. CURRENT LIABILITY 50K
C. CURRENT LIABILITY 15K, NONCURRENT LIABILITY 35K
D.NONCURRENT LIABILITY 50K
The answer is d. Can someone please explain how to find out whether it is current or non current liability. Thank you
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FARleft
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| Posted: 27 Nov 2010 at 17:54 | IP Logged
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Pension plan liability may be reported as current, non-current or both.
The PBO is long term in nature and expected payments in 2012 is short-
term in nature.
Compare Fair value of Plan assets 200 to
PBO (future)...................................250
This is a net liability of 50K. This is an indication of an underfunded
pension.
(Fair value of plan assets less than PBO)
Underfunded Pension plans are reported as a current liability to the extent
that the benefit obligation payable within the next 12 months exceeds the
fair value of the plan assets
Example of a current liability would be if at 12/31/year 11 the following
occurred:
Expected Benefits payments in year 12 $220 exceeds fair value of plan
assets $200, then there would be a current liability of $20 because 220 is
due within 1 year but the plan asset can only cover $200
There is a very good example in the earlier part of Becker F6.
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cpawannabe09
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| Posted: 27 Nov 2010 at 22:12 | IP Logged
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I understand the example in the book but in this problem I am lost. What is the expected benefit payment in this example? are we comparing $295 vs. $285?
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acm_acm
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| Posted: 04 Feb 2011 at 09:22 | IP Logged
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In your problem, compare $295 vs. $285 to produce a $10 positive funded status, which is an asset, so no need to compare to expected benefit payments as it is just a noncurrent asset. If had been negative, would compare vs. plan assets to see how much is current vs. noncurrent liability.
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