Think twice, maybe. International Motors (IM) currently shows a pension asset of $1.2 billion on its balance sheet. Upon further inspection it is discovered that IM’s pension is actually under funded by $1.3 billion. What adjustments would an analyst make to modify the balance sheet of IM to include this discrepancy? A) Eliminate the pension asset, increase long-term liabilities by $1.3 billion, and reduce equity by $2.5 billion. B) Eliminate the pension asset, increase long-term liabilities by $2.5 billion, and reduce equity by $2.5 billion. C) Increase long-term liabilities by $1.3 billion, and reduce equity by $1.3 billion.
A?
A
Nice. Success doesn’t sleep. A it is.
why equity need to be reduced?
Interesting. Balance sheet should be balanced. A=L+E or (A-1.2)=(L+1.3)+(E-2.5)