How is balance sheet balanced if only adjustment made is reduction in postretirement obligation in balance sheet in the following problem. --------- 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) an increase in plan assets of $0.5 million. B) an increase in the reported postretirement obligation of $0.5 million. C) an increase in the reported postretirement obligation of $2.5 million. D) a reduction in the reported postretirement obligation of $0.5 million. Your answer: D was correct! 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.
Share holders’ equity goes up the same amount
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cool. thanks
I Do not agree, I think the cash will pay for the cost, so i think cash will go down 0.5million to balance. anyone agree?
Maybe it’s late and I’m brain dead, but I don’t understand how you get this answer. Anyone in the mood to elaborate? Gracias.
Sims Wrote: ------------------------------------------------------- > Share holders’ equity goes up the same amount Since the method for calculating Accumulated Post Retirement benefit obligation is same as the pension one, I guess when you reduce liablity to reflect the funded status then in that case your equity would increase and DTL would increase.
Thanks, I get it now. Finally starting to come together…