Question

In: Accounting

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 1 year ago
Next > < Previous

Related Solutions

Turner Inc. provides a defined benefit pension plan to its employees. The company has 150 employees....
Turner Inc. provides a defined benefit pension plan to its employees. The company has 150 employees. The remaining amortization period at December 31, 2016, for prior service cost is 5 years. The average remaining service life of employees is 11 years at January 1, 2017, and 10 years at December 31, 2017. The AOCI—net actuarial (gain) loss was zero at December 31, 2016. Turner smooths recognition of its gains and losses when computing its market-related value to compute expected return....
ABC Corp. provides its employees with a defined benefit pension plan. The company's actuary has provided...
ABC Corp. provides its employees with a defined benefit pension plan. The company's actuary has provided you with the following information as of December 31, 2020: PBO $ 1,200,000 Fair Value Plan Assets 1,650,000 Current Service Cost 480,000 Interest Cost 48,000 PSC amortization 120,000 Expected and actual return on assets 165,000 In the past, contributions made to the pension plan have been equal to the pension expense for the corresponding year. The company has not made any contribution in 2020....
AOG Inc. provides a defined benefit plan for its employees, and reports using ASPE. The pension...
AOG Inc. provides a defined benefit plan for its employees, and reports using ASPE. The pension plan administrator for AOG Inc. provided the following information for the year ended December 31, 2020          Fair value of plan assets, January 1..................................           820,000          Defined benefit obligation, January 1..............................            760,000          Current service cost.........................................................           60,000          Employer contributions..................................................             85,000          Benefits paid to retirees...................................................           50,000           Actuarial Gain………………………………………………….            25,000          Actual return...................................................................                 5%          Interest (discount) rate....................................................                  6% Required: a.) What is the fair value of the plan assets at December 31,...
Thorp Inc. maintains a defined benefit pension plan for its employees. Pension plan balances as at...
Thorp Inc. maintains a defined benefit pension plan for its employees. Pension plan balances as at January 1, 2020 include: Projected Benefit Obligation (PBO), January 1, 2020 $ 600,000 Plan assets at market-related value, January 1, 2020 $ 550,000 Prior service cost (PSC- OCI)1 $ 150,000 Average remaining service period 15 years Service cost $ 90,000 Expected returns on plan assets 8% Actual returns earned on plan assets $40,000 Actuarial interest rate 4% Contributions paid $ 150,000 Benefits to retirees...
Thorp Inc. maintains a defined benefit pension plan for its employees. Pension plan balances as at...
Thorp Inc. maintains a defined benefit pension plan for its employees. Pension plan balances as at January 1, 2020 include:     Projected Benefit Obligation (PBO), January 1, 2020 $ 600,000     Plan assets at market-related value, January 1, 2020   $ 550,000     Prior service cost (PSC- OCI)1 $ 150,000 Average remaining service period 15 years    Service cost $ 90,000    Expected returns on plan assets   8% Actual returns earned on plan assets    $40,000 Actuarial interest rate   4%    Contributions paid $ 150,000 Benefits to retirees...
Xyz Company provides the following information about its defined benefit pension plan for the year 2020....
Xyz Company provides the following information about its defined benefit pension plan for the year 2020. Service cost $91,600 Contribution to the plan 104,400 Prior service cost amortization 10,800 Actual and expected return on plan assets 64,600 Benefits paid 40,300 Plan assets at January 1, 2020 650,000 Projected benefit obligation at January 1, 2020 692,000 Accumulated OCI (PSC) at January 1, 2020 150,000 Interest/discount (settlement) rate 11 % Prepare a pension worksheet inserting January 1, 2020, balances, showing December 31,...
Pina Company provides the following information about its defined benefit pension plan for the year 2020....
Pina Company provides the following information about its defined benefit pension plan for the year 2020. Service cost $90,900 Contribution to the plan 103,000 Prior service cost amortization 9,300 Actual and expected return on plan assets 63,200 Benefits paid 39,800 Plan assets at January 1, 2020 648,600 Projected benefit obligation at January 1, 2020 706,600 Accumulated OCI (PSC) at January 1, 2020 148,800 Interest/discount (settlement) rate 10 % Prepare the journal entry recording pension expense. (Credit account titles are automatically...
Teal Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the...
Teal Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the following balances relate to this plan. Plan assets $489,900 Projected benefit obligation 616,700 Pension asset/liability 126,800 Accumulated OCI (PSC) 95,600 Dr. As a result of the operation of the plan during 2020, the following additional data are provided by the actuary. Service cost $86,900 Settlement rate, 9% Actual return on plan assets 57,100 Amortization of prior service cost 19,500 Expected return on plan assets...
Teal Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the...
Teal Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the following balances relate to this plan. Plan assets $489,900 Projected benefit obligation 616,700 Pension asset/liability 126,800 Accumulated OCI (PSC) 95,600 Dr. As a result of the operation of the plan during 2020, the following additional data are provided by the actuary. Service cost $86,900 Settlement rate, 9% Actual return on plan assets 57,100 Amortization of prior service cost 19,500 Expected return on plan assets...
Flint Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the...
Flint Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the following balances relate to this plan. Plan assets $470,900 Projected benefit obligation 609,900 Pension asset/liability 139,000 Accumulated OCI (PSC) 99,800 Dr. As a result of the operation of the plan during 2020, the following additional data are provided by the actuary. Service cost $93,800 Settlement rate, 10% Actual return on plan assets 54,500 Amortization of prior service cost 19,800 Expected return on plan assets...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT