Question

A gain from changing an estimate regarding the obligation for pension plans will: Multiple Choice Increase assets. Increase liabilities. Decrease shareholders' equity. Increase shareholders' equity.

Answer 1

Answer:

Increase shareholders' equity.

Explanation:

When there is a gain from changing an estimate regarding the obligation for pension plans, it indicates that an expenses to be incurred on pension plans has fallen below the expected amount. The lesser expenses an organisation incurred, the higher will be its profit.

Since profit or retained profit is one of the components of the shareholders' equity section of the balance sheet, a higher profit due to gain from changing an estimate regarding the obligation for pension plans will therefore increase the shareholders' equity.

Answer 2

Answer:

Increase shareholders' equity.

Explanation:

When there is a change in estimated pension plans it will lead to more revenue for the business and more retained earnings for the business. Retained earnings and stocks make up owner's equity, so this will increase owner equity.

Change in estimate of pension funding can occur when a business moves from defined benefit plans (funded by employees and they bear the risk) to defined contribution plan (employees fund the pension and bear the risk).