XYZ sponsors a defined contribution plan for its employees.On January 1,Year 1,the company paid $120,000 to the plan's trustee.The trustee called for annual payments of $90,000 to be made annually into the plan.Which of the following best describes the effects of this plan on XYZ's Year 1 financial statements?
A) XYZ would record pension expense of $120,000 and a current asset of $30,000.
B) XYZ would record pension expense of $90,000 and a current asset of $30,000.
C) XYZ would record pension expense of $90,000 and a non-current asset of $30,000.
D) XYZ would record pension expense of $120,000 and no balance sheet amounts.

Question

Quizplus · Accepted Answer

The payment of $120,000 on January 1, Year 1 is not recorded as an expense in Year 1 because it is a prepaid amount. However, the annual payment of $90,000 is recorded as pension expense in Year 1. Therefore, XYZ would record pension expense of $90,000 and a current asset of $30,000 (which is the difference between $120,000 prepaid and $90,000 actual payment).

XYZ Sponsors a Defined Contribution Plan for Its Employees