Question

JDS Shipyard's projected benefit obligation, accumulated benefit obligation, and plan assets were $40 million, $30 million, and $25 million, respectively, at the end of the year. a. What, if any, pension liability or pension asset must be reported in the balance sheet? b. What, if any, pension liability or pension asset must be reported in the balance sheet if the plan assets were $45 million instead?

Answer 1

The correct answer for option (a) is $15 million and for option (b) is -$5 million.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Projected benefit obligation = $40 million

Accumulated benefit obligation = $30 million

Plan assets = $25 million

(a). We can calculate the pension liability by using following formula:

Pension liability = Projected benefit obligation - Plan assets

= $40 million - $25 million

= $15 million

(b). If Plan assets = $45 million

Than, Pension liability = $40 million - $45 million

= -$5 million