Chapter 17, Problem 17.18Q

To determine

Pension expense: Pension expense is an expense to the employer paid as compensation after the completion of services performed by the employees.

Projected benefit obligation (PBO): This is the estimated present value of future retirement benefits, accumulated based on the future compensation levels.

Plan assets: The assets which are used to satisfy the postretirement obligation are held as a pension fund by the trustee, to invest the employer contributions, accumulate the earnings on investments, and pay the contributions plus earnings to the retired employees, are referred to as plan assets.

Funded status: The net difference of the total of projected benefit obligation (PBO) and pension plan assets are referred to as funded status. If the balance of PBO is more than plan assets, the difference is referred to as underfunded status, and reported as net pension liability on the balance sheet. If the balance of plan assets is more than PBO, the difference is referred to as overfunded status, and reported as net pension asset on the balance sheet.

To define: The affect of pension expense on the funded status of the plan.