Penny Pincher Co defined benefit pension plan: Calculate funded status, obligation

Penny Pincher Company has a defined benefit pension plan for its employees. The following pension data are available at year end (in millions):

Accumulated benefit obligation $142
Projected benefit obligation 205
Fair value of plan assets 175

There is no balance in prepaid/accrued pension costs.

Required:

a. Calculate the funded status of the plan (see definition under ASC (was old SFAS 158 for funded status). Is the plan overfunded or underfunded?

b. If the projected benefit obligation provides the appropriate measure of the company's obligation for pension benefits and the assets in the fund are viewed as satisfying all or part of that obligation, what is Penny Pincher's liability, if any, for the pension plan at year-end? Briefly explain, citing the conceptual framework's definition of liabilities in your explanation.

c. What amount will Penny Pincher have to report in its balance sheet? Is it an asset or liability?

Solution Summary

Your tutorial is 309 words and explains underfunding, how to compute it, how to report it, how to classify it and whether it qualifies as a liability based on the conceptual framework.