Financial Accounting and Reporting-CPA Practice Exam

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Study for the Financial Accounting and Reporting-CPA Exam. Test your knowledge with multiple choice questions covering key topics. Prepare confidently for your certification!

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What is the total liability Welsh Corporation should recognize for its defined benefit pension plan?

$116,000
$122,000
$117,000
$249,000

The correct answer is: $249,000

In the context of defined benefit pension plans, the total liability recognized on the balance sheet reflects the present value of future pension benefits owed to employees. This calculation typically involves several components, including the projected benefit obligation (PBO), which considers factors like salary growth, employee turnover, and longevity. The amount of $249,000 indicates a comprehensive calculation that accounts for the expected future payouts based on the specific plan provisions, actuarial assumptions, interest rates, and demographic factors. This value represents the total obligation that Welsh Corporation has towards its employees for the pension plan, ensuring that they are able to meet their promised retirement benefits. When calculating the total liability for a defined benefit pension plan, it’s crucial to ensure that all relevant information is incorporated accurately, including any remeasurements or adjustments based on updated actuarial assumptions. The value chosen reflects those adjustments and assumptions as required by accounting standards such as ASC 715. In summary, recognizing a liability of $249,000 signifies that Welsh Corporation has accurately assessed its obligations in line with financial reporting and pension accounting standards, ensuring a clear representation of its long-term financial commitments.