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The following is the only information pertaining to Kane Co.’s defined benefit p

ID: 2438430 • Letter: T

Question

The following is the only information pertaining to Kane Co.’s defined benefit pension plan:

Pension asset, January 1, Year 1                                         $ 2,000

Service cost                                                                        19,000

Interest cost                                                                         38,000

Actual and expected return on plan assets                             22,000

Amortization of prior service cost arising in a prior period       52,000

Employer contributions                                                         40,000

In its December 31, Year 1, balance sheet, what amount should Kane report as the unfunded or overfunded projected benefit obligation (PBO)?

a. $  7,000 overfunded.

b. $15,000 underfunded.

c. $45,000 underfunded.

d. $52,000 underfunded.

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Explanation / Answer

The correct answer is option (a) i.e. $ 7,000 overfunded which is calculated as below:- Particulars Amount ($) Pension asset, January 1, Year 1          2,000 Less : Service cost       19,000 Less : Interest cost     38,000 Add : Actual and expected return on plan assets     22,000 Add : Employer contributions     40,000 Overfunded projected benefit obligation (PBO)      7,000