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CFA Institute Exam CFA-Level-II Topic 3 Question 86 Discussion

Actual exam question for CFA Institute's CFA-Level-II exam
Question #: 86
Topic #: 3
[All CFA-Level-II Questions]

Lauren Jacobs, CFA, is an equity analyst for DF Investments. She is evaluating Iron Parts Inc. Iron Parts is a manufacturer of interior systems and components for automobiles. The company is the world's second largest original equipment auto parts supplier, with a market capitalization of $1.8 billion. Based on Iron Parts's low price-to-book value ratio of 0.9* and low price-to-sales ratio of 0.15x, Jacobs believes the stock could be an interesting investment. However, she wants to review the disclosures found in the company's financial footnotes. In particular, Jacobs is concerned about Iron Parts's defined benefit pension plan. The following information for 2007 and 2008 is provided.

Iron Parts has adopted SFAS No. 158, Employers' Accounting for Defined Benefit Pensions and Other Postretirement Plans.

Jacobs wants to fully understand the impact of changing pension assumptions on Iron Parts's balance sheet and income statement. In addition, she would like to compute Iron Parts's economic pension expense.

As of December 31, 2008, the funded status of Iron Parts's pension plan was:

Show Suggested Answer Hide Answer
Suggested Answer: B

Funded status equals fair value of plan assets minus PBO (395 - 635 = -240). (Study Session 6, LOS 22.c,f)


by Yoko at Aug 08, 2024, 05:40 PM

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Sol
7 months ago
B) $240 million underfunded. Easy peasy, just follow the numbers. Though I do wonder if the janitor at Iron Parts knows more about pensions than the analysts.
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Effie
7 months ago
I'm not sure about the answer, but I know that an underfunded pension plan can have negative implications for a company's financial health.
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Nana
7 months ago
Ah, the joys of pension accounting. I wonder if Iron Parts has enough spare parts to fix this underfunded mess.
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Eileen
6 months ago
Let's see if Jacobs can make sense of the impact on Iron Parts's financials.
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Weldon
7 months ago
It's definitely a concern for investors, especially with a large underfunded status.
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Velda
7 months ago
I hope Iron Parts can turn things around with their pension plan.
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Elmira
7 months ago
I agree with Vesta, the pension plan seems to be significantly underfunded.
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Vesta
7 months ago
I think the answer is B) $240 million underfunded.
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Yoko
7 months ago
Wait, wasn't there something about SFAS No. 158? I bet that's the key to solving this problem. *scratches head*
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Gregoria
7 months ago
I think option A) $175 million underfunded is the correct answer based on the information provided.
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Nada
7 months ago
Yes, SFAS No. 158 is important for understanding Iron Parts's pension plan.
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Chanel
7 months ago
Hmm, I'm not sure. The question seems a bit tricky. Let me double-check the numbers...
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Stevie
7 months ago
I believe it's important to fully understand the impact of changing pension assumptions on the company's financials.
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Stefania
7 months ago
I agree, the question is a bit tricky. Let's carefully review the numbers.
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Maira
7 months ago
I think the answer is B) $240 million underfunded.
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Albert
8 months ago
The answer has to be B) $240 million underfunded. The information provided clearly shows the pension plan was underfunded by $240 million in 2008.
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Angelo
7 months ago
It definitely raises some concerns about the company's financial health.
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Gilma
7 months ago
That's a significant amount of underfunding for Iron Parts's pension plan.
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Hyman
7 months ago
Yes, you are correct. The pension plan was indeed underfunded by $240 million in 2008.
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Chantell
7 months ago
I think the answer is B) $240 million underfunded.
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