Question

The following items appear on Brueggen Company’s financial statements. 1. Under the caption Assets: Pension asset/liability. 2. Under the caption Liabilities: Pension asset/liability. 3. Under the caption Stockholders’ Equity: Prior service cost as a component of Accumulated Other Comprehensive Income. 4. On the income statement: Pension expense. Instructions Explain the significance of each of the items above on corporate financial statements. (Note: All items set forth above are not necessarily to be found on the statements of a single company.)

Short answer

Assets and liabilitiesare the two components of theorganization's balance sheet. Both of the variables are opposite each other and help the business understand its position.

Step-by-step solution

(1) Pension asset/liability

Under the caption assets, pension asset/liability measures the employer's and the employee's contributions over the total net pension expense. It is reported under the asset section in the organization's balance sheet.

(2) Pension asset/liability

Under the caption liabilities, the employer makes the contributions and is reported under the liability section of the balance sheet.

(3) Prior service cost as a component of Accumulated Other Comprehensive Income

Under the caption stockholder's equity, the accumulated other comprehensive income components are generated because of the difference in actual return on plan assets and expected return on plan assets. It will be reported under the equity section of the organization's balance sheet under the head of other comprehensive income.

(4) Pension expense

Under the income statement of an organization, each pension plan component will be treated to identify the amount of pension expense. It will be reported under the income statement of the employer.