Quick Question on Pension

net, accounting, liability, decrease

QBank #87587
the Service and Interest Cost related to the pension accounting had been miscalculated, the new estimate should be 13M USD higher, to correct the accounting
the answer increase the liability by 13 x (1-Tax) , decrease the net income and equity by 13 X (1-Tax)
PBO should be increased by amount before tax or after tax? I am confused here
Thanks

BC_MBA_student

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发表于 2013-4-2 12:34 | 只看该作者

Can you post the question?

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tango_gs

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发表于 2013-4-2 12:35 | 只看该作者

please post this question i am confused

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sabaruch

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发表于 2013-4-2 12:35 | 只看该作者

Great Plains Grains (GPG) reported the following 2009 year-end data:
Net income $45 million
Dividends $10 million
Total long-term liabilities $100 million
Total shareholder’s equity $200 million
Effective tax rate 40 percent
Deferred Tax Assets $6 million
Funded Status Underfunded
Following the release of this data, GPG discovered that the service and interest costs related to their pension fund accounting had been miscalculated. The new estimates are $5 million and $8 million higher than the original estimates. What is the impact on the debt to equity ratio? The new debt/equity ratio is:
A 56.1%
B 61.7%
C 56.5%
The correct answer was A) 56.1%.
The increases in the service and interest costs will decrease net income by $7.8 million ((5 + 8)

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