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ABC, Inc. provides its employees with a defined benefit pension plan. In 2020, the company made...

ABC, Inc. provides its employees with a defined benefit pension plan. In 2020, the company made the mistake of not amortizing the cost of prior period services (PSC). Which of the following statements is correct?

a. Total equity is underestimated.

b. The company's net income is overstated.

c. Total debt is overstated.

d. The company's net income is underestimated.

Solutions

Expert Solution

Answer is option b). The company's net income is overstated.

When amortizing a cost the net income will decrerase . Here the company made the mistake of not amortizing the cost of prior period services. thus  the company's net income is overstated. overstatement of Net income also overstate equity

ekkarill92 answered 2 years ago
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