Question

Information regarding the defined-benefit pension plan of Pauline Products included the following for 2016 ($ in millions):

December 31:
Projected benefit obligation (PBO)...$85
Accumulated benefit obligation (ABO)...$75
Plan assets...$50
Pension expense...$8

No contributions were made to the pension plan assets during 2016. At December 31, 2016, what amount should Pauline Products report as its net pension liability?

A) $10 million
B) $25 million
C) $27 million
D) $35 million

Answer 1

The net pension liability for Pauline Products is $35 million.

Step-by-step explanation:

To determine the net pension liability, we need to calculate the funded status of the pension plan, which is the difference between the projected benefit obligation (PBO) and the plan assets. In this case, the PBO is $85 million and the plan assets are $50 million, so the funded status is $85 million - $50 million = $35 million. However, since the accumulated benefit obligation (ABO) is $75 million, which is less than the PBO, we need to subtract the ABO from the funded status to find the net pension liability. Therefore, the net pension liability is $35 million - $75 million = -$40 million. However, since the negative net pension liability is not one of the options given, the answer would be D) $35 million.