in order to reflect the underlying economic liability of magenta rsquo s defined ben 605236
Magenta Corp. is based in the United States and offers its employees a defined-benefit pension plan. The company’s effective tax rate for 2008 is 40 percent. Excerpts from a financial statement footnote on Magenta’s retirement plans are presented in Exhibit 14-15.
EXHIBIT 14-15 Magenta Corp. Defined-Benefit Pension Plan
|
($ millions) |
2008 |
|
Change in benefit obligation |
|
|
Benefit obligation at beginning of year |
$28,416 |
|
Service cost |
96 |
|
Interest cost |
1,557 |
|
Actuarial (gains) losses |
—306 |
|
Prior service cost |
132 |
|
Foreign exchange impact |
—42 |
|
Benefit paid |
—1,332 |
|
Benefit obligations at end of year |
$28,531 |
|
Change in plan a5SerS |
|
|
Fair value of plan assets at beginning of year |
$23,432 |
|
Actual return on plan assets |
1302 |
|
Employer contributions |
693 |
|
Benefit paid |
-1,332 |
|
Fair value of plan assets at the end of year |
$24,105 |
|
Components of net periodic benefit cost |
|
|
Service cost |
$96 |
|
Interest cost. |
1,557 |
|
Expected return plan assets |
—1,874 |
|
Amortization of net actuarial loss |
264 |
|
Net periodic benefit cost |
$43 |
In order to reflect the underlying economic liability of Magenta’s defined-benefit pension plan, an analyst would adjust Magenta’s 2008 balance sheet to include a $24,105
a. increase in assets and equity.
b. increase in assets and liabilities.
c. increase in liabilities and reduction to equity.