Situation Panther Company currently sponsors a defined benefit pension plan for its employees. At the end of
Question:
Situation
Panther Company currently sponsors a defined benefit pension plan for its employees. At the end of 2019, the plan had a projected benefit obligation of $1,456,000 and fair value of plan assets of $1,629,000. Panther recognized a net pension asset in its balance sheet of $173,000 at the end of 2019. Due to the plans overfunded position, Allison Costello, Panther’s CFO, is interested in finding out if it is possible to settle or curtail the plan. Specifically, she is interested in purchasing a portfolio of high-quality bonds that have principal and interest payment dates very similar to the estimated dates pension benefits would be paid.
Directions
1. Research the GAAP and prepare a short memo to Allison Costello that provides guidance on the following issues: What is a pension settlement and pension curtailment?
2. Can the company recognize a gain or loss if it settles its pension plan? What is the amount of the gain or loss?
3. Can the company recognize a gain or loss if it curtails its pension plan? What is the amount of the gain or loss?
4. Would Allison Costello’s plan of purchasing high-quality bonds qualify as a settlement of a pension plan? Why or why not?
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
Step by Step Answer:
Intermediate Accounting Reporting and Analysis
ISBN: 978-1337788281
3rd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach