[rsiddiqui]

AmeriGene Inc. reported net periodic pension cost of $400,000 in the current year, calculated as follows:

Service cost $ 300,000

Interest cost 175,000

Expected return on plan assets (100,000)

Amortization of prior service cost 40,000

Amortization of net gain (15,000)

Net periodic pension cost $ 400,000

AmeriGene has an overfunded pension plan. The company’s effective tax rate is 30%. How will the service cost component of the current year net periodic pension cost affect the current year balance sheet?

a.

$300,000 increase in noncurrent pension benefit asset.

b.

$90,000 increase in accumulated other comprehensive income.

c.

$300,000 decrease in retained earnings.

d.

$90,000 increase in deferred tax asset.

I know the answer is D but I have a question regarding taxes. How do you know if you have to calculate deferred taxes for a problem. When I selected the answer I selected one of the 300,000 number. How do you know that you have to calculate deferred tax asset.

[lolo]

You always need to account for pension transactions after tax effect …

My Nick name is sunshine, but the fact is I have not been in touch with it since I started this CPA exam! IT HURTS

AUD - ✔ Passed Becker self study!
BEC - ✔ Passed Becker self study!
FAR - ✔ Passed Becker self study!
REG - TBD

[Author]

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