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: 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

The most likely amount ABC Corp. will report as its net pension liability on its 2023 financial statements is approximately $3.81 million, considering PBO, plan assets, and discount rate.

The net pension liability is determined by subtracting the fair market value of plan assets ($8 million) from the Projected Benefit Obligation (PBO) estimated at $12 million. Therefore, the unfunded status is $12 million - $8 million = $4 million.

To calculate the present value of the net pension liability, the unfunded status is discounted using the risk-adjusted discount rate of 5%. The formula is:

Net Pension Liability = Unfunded Status / (1 + Discount Rate).

Substituting the values, the net pension liability is approximately $4 million / (1 + 0.05) ≈ $3.81 million.

Thus, the most likely amount ABC Corp. will report as its net pension liability on its 2023 financial statements is approximately $3.81 million.

Complete question:

ABC Corp. adopted a defined-benefit pension plan in 2023. During its first year, the company contributed $7 million to the plan and the actuary estimated the Projected Benefit Obligation (PBO) to be $12 million by year-end. However, due to unexpected market fluctuations, the fair market value of the plan assets only reached $8 million. Considering these figures and a risk-adjusted discount rate of 5%, what is the most likely amount ABC Corp. will report as its net pension liability on its 2023 financial statements?