Question

Van Nuen Inc. began a defined-benefit pension plan for its employees on January 1, 2016. The following data are provided for 2016, as of December 31, 2016:

Projected benefit obligation...$785,000
Accumulated benefit obligation...$740,000
Plan assets at fair value...$655,000
Pension expense...$715,000
Employer's cash contribution (end of year)...$655,000
What amount should Van Nuen report as its net pension liability at December 31, 2016?

A) $45,000
B) $85,000
C) $130,000
D) $0

Answer 1

Van Nuen Inc. should report a net pension liability of $130,000 at December 31, 2016, as this is the difference between the projected benefit obligation of $785,000 and the plan assets at a fair value of $655,000.

Step-by-step explanation:

To determine Van Nuen Inc.'s net pension liability at the end of the year, we need to compare the projected benefit obligation (PBO) with the fair value of the plan assets.

The net pension liability is the difference between the PBO and the plan assets when the PBO exceeds the plan assets. The data provided shows a PBO of $785,000 and plan assets at a fair value of $655,000.

Therefore, the net pension liability is calculated as follows:

PBO - Plan Assets = Net Pension Liability
$785,000 - $655,000 = $130,000

Hence, Van Nuen Inc. should report a net pension liability of $130,000 at December 31, 2016, which corresponds to option C).