[Anonymous]

On Becker’s simulation from F-6, the service cost given is $125,000 and the interest cost is calculated to be $33,600. According to Becker, the correct JEs for the year should be:

DR: Net Periodic Pension Cost $158,600

CR: Pension Benefit Asset $158,600

DR: DTA $63,440

CR: Income tax benefit-deferred $63,440.

Ok, so why are we crediting Pension Benefit Asset? Shouldn’t we credit PBO instead?

The only way Pension Benefit Asset is going to decrease is if there were contributions paid to retirees….

Thanks!

[Anonymous]

Companies must report the funded status of their pension plans on the balance sheet as an asset or liability.

Fair value of plan assets +/- PBO = Funded Status

In this case, the plan is overfunded, so you credit the Pension Benefit Asset (the funded status) to reflect the current year's pension cost.

Pension Benefit Assets can also decrease by incurring net periodic cost in excess of amounts paid in, administrative expenses, or by decrease in the FMV.

[Anonymous]

Thank you Chynablue!

[Author]

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