How is net income adjusted for pension costs under the indirect method of preparing the statement of cash flows?
A) If pension expense is greater than the amount funded, the difference between the two is added to net income.
B) If pension expense is less than the amount funded, the difference between the two is added to net income.
C) If pension expense is greater than the amount funded, the sum of the two is added to net income.
D) If pension expense is less than the amount funded, the sum of the two is added to net income.

Question

Quizplus · Accepted Answer

If pension expense is greater than the amount funded, it means there is an underfunding, which is a non-cash expense. Therefore, the difference is added back to net income to adjust for this non-cash expense.

How Is Net Income Adjusted for Pension Costs Under the Indirect