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AmeriGene Inc. reported net periodic pension cost of $400,000 in the current year, calculated as follows:
Service cost $ 300,000
Interest cost 175,000
Expected return on plan assets (100,000)
Amortization of prior service cost 40,000
Amortization of net gain (15,000)
Net periodic pension cost $ 400,000
AmeriGene has an overfunded pension plan. The company’s effective tax rate is 30%. How will the service cost component of the current year net periodic pension cost affect the current year balance sheet?
a.
$300,000 increase in noncurrent pension benefit asset.
b.
$90,000 increase in accumulated other comprehensive income.
c.
$300,000 decrease in retained earnings.
d.
$90,000 increase in deferred tax asset.
I know the answer is D but I have a question regarding taxes. How do you know if you have to calculate deferred taxes for a problem. When I selected the answer I selected one of the 300,000 number. How do you know that you have to calculate deferred tax asset.
rsiddiqui
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