A company provides a defined benefit pension plan for all of its employees. The fair value of the plan assets at year-end is $45,000,000. The values of the accumulated benefit obligation and projected benefit obligation at year end are $46,000,000 and $60,000,000, respectively. The company expects to make benefit payments totaling $2,000,000 next year. What amount should the company report in the year-end financial statements as a liability in connection with the defined benefit pension plan

Question

Nylah Huff

Business

21 March, 19:00

A company provides a defined benefit pension plan for all of its employees. The fair value of the plan assets at year-end is $45,000,000. The values of the accumulated benefit obligation and projected benefit obligation at year end are $46,000,000 and $60,000,000, respectively. The company expects to make benefit payments totaling $2,000,000 next year. What amount should the company report in the year-end financial statements as a liability in connection with the defined benefit pension plan

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Marcel · Answer 1

pension liability of $15 million

Explanation:

in order to define if the company's pension plan is an asset or a liability, you must subtract the projected benefit obligation from the current fair value of the plan:

fair value - projected benefit obligation = $45,000,000 - $60,000,000 = - $15,000,000

Since the result is negative, then the benefit pension plan must be recorded as a pension liability of $15 million.