Chapter 20 Pensions and Postretirement
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1. The accumulated benefit obligation measures: the pension
obligation on the basis of the plan formula applied to years of
service to date and based on existing salary levels.
2. All of the following pension information should be disclosed
in the notes to the financial statements: 1.the expected
benefit payments to be paid to current plan participants for
each of the next five fiscal years.
2. a company's best estimate of expected contributions to be
paid to the plan during the next year.
3. a reconciliation showing how the projected benefit
obligation and the fair value of the plan assets changed from
the beginning to the end of the period.
3. All of the following statements regarding the accounting for
various forms of compensation plans under IFRS are true: 1.
IFRS does not recognize prior service costs on the balance
sheet.
2. in order to dampen and in some cases fully eliminate the
fluctuations in pension expenses, IFRS uses smoothing
provisions.
3. for defined benefit plans, IFRS companies have the choice
of recognizing actuarial gains and losses in income
immediately or amortizing them over the expected remaining
working lives of employees
4. Amortization of prior service cost generally decreases
pension expense. T/F: FALSE . Amortization of prior service
cost generally increases pension expense.
5. Amortization of prior service costs is based on the: Years of
service method
6. The approach adopted by the accounting profession to
measure a firm's pension obligation is the:: PBO
7. At December 31, 20X8, High Horse Company has the
following pension plan information:
Fair value of plan assets, beginning of year $1,100,000; Fair
value of plan assets, ending of year 1,135,000; Contributions
275,000; Benefits paid 340,000; Expected rate of return on
plan assets 7%. The expected return on plan assets was
used to calculate net periodic pension cost. No actuarial
gains or losses were incurred during 20X8. High Horse's
effective tax rate is 30%. What is the net gain to be
reported in 20X8 other comprehensive income?
a. $0
b. $16,100
c. $23,000
d. $77,000: b
8. The balance of the Prepaid/Accrued Cost column in the
pension worksheet should equal the: net balance in the
memo record.
9. Companies generally design pension plans that are: qualified
10. Companies must record an expense when employees earn
future benefits, and recognize an existing obligation to pay
pensions later based on current services received. T/F:
TRUE
11. The corridor approach is used to prevent the balance of the
OCI - Gain/Loss account balance from getting too large.
T/F: TRUE
12. Employers are at risk with defined-contribution plans
because they must contribute enough to meet the cost of
benefits that the plan defines. T/F: FALSE A defined-benefit
plan specifies benefits in terms of uncertain future variables, so
a company is at risk and must establish an appropriate funding
pattern to ensure the availability of funds at retirement in order
to provide the benefits promised
13. An employer's obligation for postretirement health benefits
that are expected to be provided to or for an
employee must be fully accrued by the date the:
a. Employee is fully eligible for benefits.
b. Employee retires.
c. Benefits are utilized.
d. Benefits are paid.: c
14. An employer's obligation for postretirement health benefits
that are expected to be provided to or for an
employee must be fully accrued by the date the:
a. Employee is fully eligible for benefits.
b. Employee retires.
c. Benefits are utilized.
d. Benefits are paid.: a
15. The expected postretirement benefit obligation is the
actuarial present value of future benefits attributed to
employees' services rendered to a particular date. T/F:
FALSE The expected postretirement benefit obligation is the
actuarial present value as of a particular date of all benefits a
company expects to pay after retirement to employees and
their dependents
16. The fair value of pension plan assets is used to determine
the corridor and to calculate the expected return on plan
assets.T/F: TRUE
17. The FASB prefers that unrecognized prior service cost be
amortized using the:: years of service method
18. The following information pertains to Gali Co.'s defined
benefit pension plan for 1994:
Fair value of plan assets, beginning of year $350,000
Fair value of plan assets, end of year 525,000
Employer contributions 110,000
Benefits paid 85,000
In computing pension expense, what amount should Gali
use as actual return on plan assets?
a. $65,000
b. $150,000
c. $175,000
d. $260,000: B
19. If the actual return on plan assets is positive, then it is
subtracted from the annual pension expense. T/F: TRUE
20. In a defined benefit plan, pension expense is equal to the
firm's cash contribution. T/F: FALSE A firm's contribution
payment to the pension plan can be more or less than the
actual amount of the pension expense.
21. In a defined benefit plan, the contributions to the plan are
made by the:: EMPLOYER
22. In a defined benefit plan, the funding level depends on all
of the following factors:: compensation levels, interest
earnings, turnover
23. In a defined-benefit plan, the process of funding refers to:
making the periodic contributions to a funding agency to
ensure that funds are available to meet retirees' claims.
24. In a defined-contribution plan, a formula is used that:
requires an employer to contribute a certain sum each period
based on the formula.
25. An intangible asset (deferred pension cost ) is created
when: the accumulated benefit obligation exceeds the fair
value of pension plan assets, but accrued pension cost is less
than this excess, and unrecognized prior service cost exists.
26. The interest on the projected benefit obligation component
of pension expense: reflects the rates at which pension
benefits could be effectively settled.
27. The main purpose of the Pension Benefit Guaranty
Corporation is to: administer terminated plans and to impose
liens on the employer's assets for certain unfunded pension
liabilities.
28. The minimum liability is the difference between the:
accumulated benefit obligation and the fair value of plan
assets.
29. Pension plan assets are not recognized in the company's
accounts or its financial statements. T/F: TRUE
30. Post-retirement benefits may include all of the following:
Tuition Assistance, dental care, legal and tax services
31. Prior service cost is amortized on a: years-of-service method
or on a straight-line basis over the average remaining service
life of active employees.
32. Prior service costs due to a pension plan amendment are
expensed in the year the amendment occurred. T/F: FALSE.
The cost of any retroactive benefits (prior service cost) is
recognized in other comprehensive income and amortized
over future periods using the years-of-service method.
33. Roundhouse Co. maintains a defined-benefit pension plan
for its employees. At each balance sheet date, Roundhouse
should report a pension asset / liability equal to the: funded
status relative to the projected benefit obligation.
34. Service cost is the expense caused by the increase in
pension benefits payable to employees because of their
services rendered during years prior to the current year.
T/F: FALSE Service cost is the expense caused by the increase
in pension benefits payable to employees because of their
services rendered during the current year.
35. The unexpected gains or losses that result from changes in
the projected benefit obligation are called asset gains and
losses t/f: FALSE
36. Unlike IFRS, U.S. GAAP does not permit the choice of
recognizing actuarial gains and losses in income
immediately or amortizing them over the expected
remaining work lives of employees. T/F: TRUE
37. The unrecognized net gain or loss balance must be
amortized when it exceeds 10% of the larger of the::
beginning projected benefit obligation or the market-related
asset value.
38. What is the present value of all future retirement payments
attributed by the pension benefit formula to
employee services rendered prior to that date and based
on past and current compensation levels only?
a. Service cost.
b. Interest cost.
c. Projected benefit obligation.
d. Accumulated benefit obligation.: d
39. Whenever a defined-benefit plan is amended and credit is
given to employees for years of service provided before
the date of amendment: both the pension expense and the
projected benefit obligation are usually greater than before.
40. When is the balance of the Unrecognized Net Gain or Loss
account subject to amortization?: When it exceeds 10% of the
larger of the beginning balances of the projected benefit
obligation or the market-related value of the plan assets.
41. When the additional liability exceeds the unrecognized prior
service cost:: the excess is debited to a contra equity account.
42. When the employer bears the entire cost of a pension
plan's costs, the plan is called a: noncontributory plan.
43. Which of the following disclosures is not required of
companies with a defined-benefit pension plan?
a. A description of the plan.
b. The amount of pension expense by component.
c. The weighted average discount rate.
d. The estimates of future contributions.: D
44. Which of the following disclosures of pension plan
information would not normally be required?: The amount of
prior service cost changed or credited in previous years.
45. Which of the following disclosures of pension plan
information would not normally be required by Statement
of Financial Accounting Standards No. 132, "Employers'
Disclosure about Pensions and Other Postretirement
Benefits"?: The amount paid from the pension fund to retirees
during the period
46. Which of the following does the FASB argue indicates a
more realistic measure of the employer's obligation under
the pension plan on a going-concern basis and should be
used as the basis for determining service cost?: Projected
benefit obligation
47. Which of the following is formally recognized in the
accounts of a company?: Pension Asset/Liability
48. Which of the following losses should be recognized immediately?: Losses that arise from a single occurrence such as a plant
closing.
49. Which of the following may decrease the annual pension expense amount?: Actual return on plan assets
50. Which of the following results from unexpected decreases in the pension obligation?: Liability gains.