Question

Prosper Inc. sponsors a defined benefit plan covering all employees. Prosper has not made contributions to the plan for the current year. The following data relates to the plan for the current year.

Projected benefit obligation, Dec. 31, estimated	$190,000
Accumulated benefit obligation, Dec. 31, estimated	140,000
Plan assets at fair value, Dec. 31, estimated	170,000
Pension expense, annual	35,000
Employer’s contribution, annual	?

What amount should Palace contribute to the plan by Dec. 31 in order to report an overfunded Net Pension Asset/Liability of $5,000 dr. on its December 31 balance sheet?

	A.	$37,500
	B.	$22,000
	C.	$25,000
	D.	$18,500

Answer 1

		Amount $
	Plan assets at fair value, Dec. 31, estimated	170,000
	Projected benefit obligation, Dec. 31, estimated	190,000
	Presently under funded by	-20,000
	Palace should contribute to the plan	25,000
	Now,
	Plan assets at fair value, Dec. 31	195,000	( 170,000 + 25,000 )
	Projected benefit obligation, Dec. 31	190,000
	Overfunded	$ 5,000
	Correct answer is option C ( i.e. $ 25,000 ).