Question

Assume YUM! Brands, Inc., discloses the following pension footnote in its 10-K report.

Pension benefit ($ millions)	2016	2015
Ben. obligation at beginning of year	$700	$629
Service cost	33	32
Interest cost	43	39
Plan amendments	-	1
Curtailment gain	(2)	(2)
Settlements lost	1	-
Benefits and expenses paid	(33)	(26)
Actual (gain) loss	73	27
Ben. Obligation end of year	$815	$700

The fair market value of YUM!’s plan assets is $610 million, as of 2016. What is the funded status of the plan, and how will this be reflected on YUM!’s balance sheet?

a. Underfunded, $205 million liability

b. Underfunded, $205 million asset

c. Underfunded, not reflected on the balance sheet

d. Underfunded, $815 million liability

Please be detailed with answer choice.

Answer 1

The Correct Answer is a. Underfunded, $205 million liability

Projected Benefit Obligation as the end of the year is $815

Fair Market value of the Plan Assets is $ 610

So the Funds Status is Negative by 205 Million which indicates that the plan is underfunded by 205 Million.

So Companys Balance sheet will show this as liability.