Patterson Company failed to adjust for a $600,000 actual loss on pension plan assets in 2018, resulting in an underfunded pension plan. Patterson's tax rate is 30%. As result of this error, retained earnings would be:
A) Unaffected.
B) Overstated by $60,000.
C) Overstated by $42,000.
D) Overstated by $18,000.

Question

Quizplus · Accepted Answer

The actual loss on pension plan assets is entered to accumulated other comprehensive income (AOCI) and because it is not reflected as part of pension expense, it has no effect on net income and, thus, no effect on retained earnings.

Patterson Company Failed to Adjust for a $600,000 Actual Loss