15. The city of Utica has a defined benefit pension plan. The assets of the plan...

15. The city of Utica has a defined benefit pension plan. The assets of the plan have a value of $10 million. An actuary reports that in future, years, the city will have to pay a total of $26 million to its workforce. Of the $26 million, $15 million relates to the work they have already done, and another $10 million will relate to work they will do between now and retirement. The present value of the total $25 million is $17 million. The present value of the $15 million earned so far is $11 million. What liability regarding this pension plan should be shown on the government-wide financial statements? a. $26 million b. $16 million c. $15 million d. $5 million e. $17 million f. $7 million g. $11 million h. $1 million

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Question:

The city of Utica has a defined benefit pension plan. The assets of the plan have a value of $10 million. An actuary reports that in future, years, the city will have to pay a total of $26 million to its workforce. Of the $26 million, $15 million relates to the work they have already done, and another $10 million will relate to work they will do between now and retirement. The present value of the total $25 million is $17 million. The present value of the $15 million earned so far is $11 million. What liability regarding this pension plan should be shown on the government-wide financial statements?

a. $26 million b. $16 million c. $15 million d. $5 million e. $17 million f. $7 million g. $11 million h. $1 million.

Sol:

The pension liability is basically the difference of the future value of benefits promised by the employer and fair value of the asset plan.

The future value is given as $26 million.
The assets value of the plan is given as $10 million.
The difference between the future and assets plan values is $16 million( $26M-$10M).

The liability of pension plan to be shown on the government-wide financial statements is $16 million( option b).

ekkarill92 answered 1 year ago

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