The following information applies to Babydoll Company’s defined benefit pension plan at December 31, year 8:
Projected benefit obligation, December 31, year 7…………………. $ 2,000,000
Projected benefit obligation, December 31, year 8…………………. 2,220,000
Fair value of plan assets, December 31, year 7……………………… 1,750,000
Fair value of plan assets, December 31, year 8……………………… 2,025,000
Unrecognized prior service cost, December 31, year 7……………… 500,000
Year 8 Service cost………………….………………….……………. 200,000
Expected benefits payable – year………………….………………… 400,000
Discount rate………………….………………….………………….. 6%
Expected rate of return on plan assets………………….…………… 8%
The company’s employees have an average remaining service life of 10 years. The company has no unrecognized net gains or losses. What is the funded status of Babydoll’s pension plan at December 31, year 7?
a. $ 195,000 underfunded.
b. $ 195,000 overfunded.
c. $ 250,000 underfunded.
d. $ 250,000 overfunded.