Projected benefit obligation (PBO): This is the estimated present value of future retirement benefits, accumulated based on the future compensation levels.
Plan assets: The assets which are used to satisfy the postretirement obligation are held as a pension fund by the trustee, to invest the employer contributions,
Funded status: The net difference of the total of projected benefit obligation (PBO) and pension plan assets are referred to as funded status. If the balance of PBO is more than plan assets, the difference is referred to as underfunded status, and reported as net pension liability on the
To Explain: How the funded status reported on the balance sheet.
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INTERMEDIATE ACCOUNTING
- What factors determine whether a pension plan is adequately capitalized or excessively capitalized?arrow_forwardWhich of the following statements regarding asset ceilings for overfunded and underfunded pension plans is true? A. For underfunded pension plans, the issue is whether the sponsoring entity can realize the benefits of the underfunding either through reducing or stopping its contributions in the future or through withdrawing surplus funds. B. An overfunded pension results in a net defined benefit liability on the SFP. C. An underfunded pension has a fair value of plan assets that is less than the DBO. D. An asset ceiling is the minimum benefit that the employer can realize by reducing or stopping future contributions to a defined benefit pension plan.arrow_forwardExplain how cash-basis accounting for pension plans differsfrom accrual-basis accounting for pension plans.Why is cash-basis accounting generally considered unacceptablefor pension plan accounting?arrow_forward
- What factors go into determining if a pension plan is adequately funded or not?arrow_forwardpension liability is reported when the projected benefit obligation exceeds the fair value of pension plan assets Ⓒthe accumulated benefit obligation is less than the fair value of pension plan assets. the pension expense reported for the period is greater than the funding amount for the same period accumulated other comprehensive income exceeds the fair value of pension plan assetsarrow_forwardWhat method should be used to account for profits or losses associated with pension plan assets? What is the relationship between this treatment and the handling of profits or losses connected to the pension obligation?arrow_forward
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