An Accountant Is Reviewing the fiNancial Statements of a Company

question 21

Multiple Choice

An accountant is reviewing the financial statements of a company and notes that the company reports a pension liability on its balance sheet. What does the pension liability represent?

• A) The increase in the pension obligation that was earned this year.
• B) The present value of all future pension obligations.
• C) The difference between the pension plan obligations and the pension plan assets.
• D) The amount of this year's pension expense that has not been paid yet.

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Definitions:

Historical Cost

The original cost at which an asset is acquired and recorded in the financial statements, not adjusted for inflation or market changes.

Replacement Cost

The cost to replace an asset of a company at the present time, according to its current worth.

Net Realizable Value

Net Realizable Value is the estimated selling price of goods minus the costs of their sale or completion, used to value inventory or accounts receivable in the context of impairments or realizable value considerations.

Normal Profit Margin

The average amount by which a company's sales exceed its cost of goods sold and operating expenses, representing a standard level of profit.