The Baker Company has an accrued postretirement benefit cost of $3 million on its balance sheet. Examining the notes to Baker’s financial statements you find that the accumulated postretirement benefit obligation is $2.5 million. The adjustment you would make to Baker’s reported balance sheet in analysis of these statements would be: A) a reduction in the reported postretirement obligation of $0.5 million. B) an increase in plan assets of $0.5 million. C) an increase in the reported postretirement obligation of $0.5 million. D) an increase in the reported postretirement obligation of $2.5 million.
C
D
Books show a pension cost of $3m, but footnotes show a obligation of $2.5m, hence there seems to be a good news sitting off-balance of $0.5m, not yet accounted in the books. So A??
I’ll take the only one left…B
A? I thought I knew pension one month ago. I will reread the whole thing…
on reread I like your reasoning dinesh, I’ll go A.
damn i thought its A… so whats the ans?
The correct answer was A) a reduction in the reported postretirement obligation of $0.5 million. The excess of the accrued cost over the obligation is the excess accrual (i.e., $3 million - 2.5 million), which reduces the firm’s liability.
A. I am glad i answered correctly.