Michaels Corporation has a defined benefit pension plan. In 1987, Michaels adopted the provisions of SFAS No. 87. At January 1, 1987, the projected benefit obligation (PBO) was \(\$ 400,000\). Cumulative funding and cumulative pension expense under APB Opinion No. 8 were equal. Plan assets were heavily invested in the stock market, and due to a bear market, the market value of plan assets at January 1, 1987, was \(\$ 590,000\). Michaels Corporation elected to write off the transition amount over a fifteen-year period.

For the year 1988, net periodic pension cost was negative.

Required:

a. Is the transition amount considered an asset or a liability? Explain.

b. Discuss how the transition amount in this case would affect net periodic pension expense.

c. Discuss why net periodic pension expense would be negative. In your answer list and describe any and all factors that may cause net periodic pension expense to be negative.

d. Would the pension expense for Michaels have been negative prior to the adoption of SFAS No. 87? Why the difference, if any?