Deck 20: Accounting for Postemployment Benefits

Question 1

Code: $\begin{array}{ll}\mathrm{A}= & \text { amortization of unrecogrized prior service cost } \\\mathrm{B}= & \text { interest cost } \\\mathrm{C}= & \text { gain or loss(to the extent recogrized }\\\mathrm{D}= & \text { service cost } \\\mathrm{E}= & \text { expected return on plan assets } \\\mathrm{F}= & \text { net periodic pension expense to be reported on the income statement }\end{array}$ Which equation is correct?

A)F = $\pm$ A - E + B + D $\pm$ C
B)F = B + D $\pm$ A $\pm$ C + E
C)F = D - B $\pm$ C - E $\pm$ A
D)F = B $\pm$ C - E - D $\pm$ A

Answer 1

F = $\pm$ A - E + B + D $\pm$ C

Question 2

GAAP for pension plans requires companies with defined benefit pension plans to

A)recognize pension expense based on accrual-basis concepts
B)recognize pension expense as an amount equal to the actual cash paid to retired employees for the current year
C)recognize a pension liability based on the projected benefit obligation concept
D)disclose annual pension cost in a footnote only; pension cost was not required to be reported on the income statement

Answer 2

A

Question 3

A pension plan provides for future retirement income based on the employee's income and length of service with the company.This type of pension plan is termed a

A)contributory plan
B)defined contribution plan
C)noncontributory plan
D)defined benefit plan

Answer 3

D

Question 4

An Internal Revenue Code rule that impacts the design of pension plans is

A)employee contributions to the pension fund are not taxable until pension benefits are actually received
B)pension fund earnings are taxable
C)employer contributions to the pension fund are not taxable to the employee when pension benefits are actually received
D)all employer pension expenses are deductible for income tax purposes

Question 5

If a pension plan amendment is adopted and retroactive benefits are granted to employees, the amount of the prior service cost at the date of grant is accounted for

A)as an intangible asset and liability that are recognized on the plan amendment date
B)as a prior period adjustment for the total amount of the prior service cost that is reported on the statement of retained earnings
C)as the total amount of the prior service cost that is recognized as an expense on the current period's income statement
D)initially as an unamortized amount to be included in the computation of pension expense over future periods

Question 6

The accumulated benefit obligation is equal to the

A)actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using current salary levels in the pension plan formula
B)actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using anticipated future salary levels in the pension plan formula
C)difference between the annual pension expense and the amount actually funded during the year
D)actuarial present value of benefits attributed by the pension plan formula to services rendered by employees during the current year

Question 7

The cost of retroactive benefits granted in a plan amendment or at the initial adoption of a pension plan is called

A)accumulated benefit cost
B)service cost benefits
C)prior service cost
D)vested benefits

Question 8

Which of the following is not a component of the net periodic pension expense to be reported on a company's income statement?

A)interest cost
B)unrecognized past service cost
C)service cost
D)expected return on plan assets

Question 9

Current GAAP defines the required calculations for all of the following items except

A)periodic pension expense
B)the funded status of the plan
C)the accrued/prepaid pension cost to be reported by the employer
D)the minimum required amount to be funded

Question 10

Which of the following statements is true regarding a defined contribution pension plan?

A)The pension benefits to be received by the employee during retirement are defined in the plan.
B)Defined contribution plans are the most popular type of pension plan for large corporations.
C)Defined contribution plans do not define the required benefits that must be paid to retired employees.
D)Employers that use defined contribution plans are assuming more risks than employers that use defined benefit plans.

Question 11

Current GAAP regarding employers' accounting for defined benefit pension plans defines an underfunded pension at the end of the period when the

A)fair value of plan assets exceeds the projected benefit obligation
B)projected benefit obligation exceeds the fair value of plan assets
C)accumulated benefit obligation exceeds the fair value of the plan assets
D)fair value of the plan assets exceed the accumulated benefit obligation

Question 12

Which of the following pension-related definitions is not correct?

A)Vested benefits are payments that are not contingent on the employee's continuing in the service of the employer.
B)Present value is the current worth of an amount or amounts payable or receivable in the future.
C)Actuarial assumptions are those made by actuaries concerning future events affecting pension costs.
D)Service cost is the amount paid annually to a funding agency under an unfunded pension plan.

Question 13

The projected benefit obligation is equal to the

A)actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using current salary levels in the pension plan formula
B)difference between the annual pension expense and the amount actually funded during the year
C)actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using anticipated future salary levels in the pension plan formula
D)actuarial present value of benefits attributed by the pension plan formula to services rendered by employees during the current year

Question 14

A company's net periodic pension cost (expense)includes all of the following items except

A)service cost
B)employer's contribution to the pension fund
C)amortization of unrecognized prior service cost
D)interest cost on the projected benefit obligation

Question 15

Which statement is not true?

A)In the computation of pension expense, a negative return on plan assets can be added.
B)The amount of prior service cost is not included as an asset or a liability.
C)Interest cost is equal to the projected benefit obligation at the end of the period multiplied by the discount rate used by the company.
D)A lower-than-expected mortality rate creates a pension loss to a company.

Question 16

Amortization of any unrecognized net gain or loss is included in pension expense of a given year if at the

A)end of the year, the cumulative unrecognized net gain or loss exceeds 10% of the greater of the actual projected benefit obligation or the fair value of the plan assets
B)beginning of the year, the cumulative unrecognized net gain or loss exceeds 10% of the greater of the actual accumulated benefit obligation or the fair value of the plan assets
C)end of the year, the cumulative gain or loss exceeds 10% of the greater of the actual accumulated benefit obligation or the fair value of the plan assets
D)beginning of the year, the unrecognized cumulative gain or loss exceeds 10% of the greater of the actual projected benefit obligation or the fair value of the plan assets

Question 17

Benefits for which the employee's right to receive a present or future pension benefit is no longer contingent on remaining in the service of the employer are called

A)vested benefits
B)accumulated benefits
C)service benefits
D)prior service benefits

Question 18

If an employer were to account for a defined benefit pension plan on the cash basis, it would be a violation of the

A)going-concern assumption
B)accrual concept
C)separate entity concept
D)double-entry accounting

Question 19

According to current GAAP, termination benefits paid to an employee should be

A)charged to an intangible asset and amortized straight-line over the next 15 years
B)charged to a loss
C)charged to retained earnings
D)charged to an intangible asset and amortized over the projected years of service of the remaining work force

Question 20

Which of the following statements is true regarding a defined benefit pension plan?

A)Defined benefit plans are relatively easy to handle from an accounting perspective.
B)Employers that use defined benefit plans are assuming more risks than employers that use defined contribution plans.
C)Defined benefit plans require an employer to contribute a defined sum each period to a pension fund.
D)A defined benefit plan requires the employer to fund the plan each year for an amount equal to the pension expense.

Question 21

The interest rate that may be used to compute the interest cost component of pension expense is equal to the

A)company's expected long-term rate of return on plan assets
B)rate of return on high quality fixed-income investments
C)rate of interest at which the pension benefits could be effectively settled
D)rate of return on high quality fixed-income investments or rate of interest at which the pension benefits could be effectively settled

Question 22

Exhibit 20-1 Given the following information:
$\begin{array} { | l | l | l | l | } \hline & 2010 & 2011 & 2012 \\\hline \text { Projected benefit obligation } & \$ 600 & \$ 700 & \$ 1,200 \\\hline \text { Plan asset value } & 400 & 800 & 1,100\\\hline\end{array}$ Average remaining service life = 5 years
An unrecognized net loss existed at the beginning of 2010 in the amount of $100.An additional unrecognized net loss of $20 is reported by actuaries as of the end of 2011.

-
Refer to Exhibit 20-1.What amount of loss should be added to pension expense in 2010?

A)$ 8
B)$10
C)$12
D)$20

Question 23

On January 1, 2010, a company had $84, 000 of unrecognized prior service cost.The years-of-future-service method of amortization is used.The company has seven employees, as indicated below: $\begin{array}{ll}&\text {Expected Years of}\\\text {Employee}&\text {Future Service}\\\mathrm{A} & 3 \\\mathrm{~B} & 5 \\\mathrm{C} & 5 \\\mathrm{D} & 6 \\\mathrm{E} & 6 \\\mathrm{~F} & 8 \\\mathrm{G} & 9\end{array}$
What amount of prior service cost should be included in pension expense for 2010?

A)$ 2, 000
B)$ 9, 333
C)$12, 000
D)$14, 000

Question 24

O'Brien began a defined benefit pension plan on January 1, 2010.During 2010, the service cost was $450, 000.O'Brien contributed $450, 000 to the pension plan for 2010.The actuary said the projected benefit obligation at December 31, 2010 was $450, 000.As of December 31, 2010, what statements can O'Brien make about the pension plan?

A)I
B)II
C)both I and II
D)neither I nor II

Question 25

The McMurry Company offers employees a defined contribution pension plan.In 2010, McMurry contributed $75, 000 to the plan, which paid $95, 000 to retired employees.Which of the following statements is true?

A)McMurry will record an accrued liability of $20, 000.
B)McMurry will report pension expense of $75, 000.
C)McMurry will recognize prior service cost of $20, 000.
D)McMurry will recognize actuarial gains and losses on the plan over current and future periods.

Question 26

Which of the following would not be a component of pension expense?

A)prior service cost amortization
B)interest cost
C)deferred compensation
D)return on assets

Question 27

Given the following information What is pension expense for 2011?

A)$24, 000
B)$29, 000
C)$38, 000
D)$47, 000

Question 28

Exhibit 20-3 The Grace Company adopted a defined benefit pension plan on January 1, 2010, and prior service credit was granted to employees.The present value of those benefits was calculated to be $1, 351, 800 at that date.The service cost is funded in full at the end of each year, plus an additional amount of $220, 000 is funded each year-end.The unrecognized prior service cost is being amortized by the straight-line method over the remaining 10-year service life of the company's active employees.Additional information relating to the company's pension plan is presented below:
$\begin{array}{lll}&2010&2011\\\text { Service cost (annual) } & \$ 95,000 & \$ 105,000 \\\text { Unrecogrized prior service cost } & & \\\text { amortization } & 135,180 & 135,180 \\\text { Interest cost } & 10 \% & 10 \% \\\text { Expected (and actual) return on plan assets } & 10 \% & 10 \%\end{array}$


- Refer to Exhibit 20-3.What is the correct balance in Prepaid/Accrued Pension Cost at December 31, 2010?

A)$ 84, 820 debit
B)$ 50, 360 credit
C)$1, 266, 980 credit
D)none of these

Question 29

The Susan Company has a defined benefit pension plan for its employees.The following information pertains to the pension plan: $\begin{array}{ll}\text { Projected benefit obligation, December } 31,2010 & \$ 1,680,000 \\\text { F air value of plan assets, December 31, 2010 } & 1,739,000 \\\text { Accrued/prepaid pension cost (asset), December 31, 2009 } & 51,300\end{array}$
The December 31, 2010 adjusting journal entries include a

A)debit to Accrued/Prepaid Pension Cost for $7, 700
B)debit to Other Comprehensive Income for $7, 700
C)credit to Other Comprehensive Income for $110, 300
D)credit to Accrued/Prepaid Pension Cost for $110, 300

Question 30

The Margie Company has a defined benefit pension plan for its employees.The following information pertains to the pension plan as of December 31, 2010: $\begin{array}{ll}\text { Projected benefit obligation, January 1, } 2010 & \$ 1,600,000 \\\text { Service cost, } 2010 & 750,000 \\\text { Interest cost, 2010 } & 100,000 \\\text { Payments to retired employees } & 80,000 \\\text { Actual return on plan assets } & 99,600\end{array}$
The amount of the December 31, 2010, pension benefit obligation is

A)$2, 250, 000
B)$2, 270, 400
C)$2, 370, 000
D)$2, 450, 000

Question 31

Exhibit 20-2 Minnie Co.has an unfunded prepaid/accrued pension cost of $2, 000 (debit balance)at December 31, 2010.The following information pertains to 2011:
$\begin{array}{ll}\text { Pension expense } & \$ 320,000 \\\text { Projected benefit obligation, December 31, } 2011 & 840,000 \\\text { Contributions } & 330,000 \\\text { Plan assets (fair value), December 31, 2011 } & 810,000\end{array}$


-Refer to Exhibit 20-2.The balance in Prepaid/Accrued Pension Cost at December 31, 2011, should be

A)$30, 000 debit
B)$30, 000 credit
C)$ 8, 000 credit
D)$10, 000 credit

Question 32

Danielle Company adopted a defined benefit pension plan on January 1, 2010, and prior service credit was granted to employees.The present value of that prior service obligation as of January 1, 2010 was $1, 400, 000 and is being amortized by the straight-line method over the remaining 20-year service life of the company's active employees.Additional information relating to the company's pension plan for 2010 is presented below: $\begin{array}{ll}\text { Annual service cost } & \$ 132,000 \\\text { Contribution to the plan (December } 31,2010) & 390,000 \\\text { Interest cost } & 10 \% \\\text { Expected (and actua) return on plan assets } & 12 \%\end{array}$
What amount should be recorded in Prepaid/Accrued Pension Cost when recording the 2010 pension expense and funding at December 31, 2010?

A)$ 1, 200 credit
B)$48, 000 credit
C)$87, 000 credit
D)$94, 800 credit

Question 33

Exhibit 20-3 The Grace Company adopted a defined benefit pension plan on January 1, 2010, and prior service credit was granted to employees.The present value of those benefits was calculated to be $1, 351, 800 at that date.The service cost is funded in full at the end of each year, plus an additional amount of $220, 000 is funded each year-end.The unrecognized prior service cost is being amortized by the straight-line method over the remaining 10-year service life of the company's active employees.Additional information relating to the company's pension plan is presented below:
$\begin{array}{lll}&2010&2011\\\text { Service cost (annual) } & \$ 95,000 & \$ 105,000 \\\text { Unrecogrized prior service cost } & & \\\text { amortization } & 135,180 & 135,180 \\\text { Interest cost } & 10 \% & 10 \% \\\text { Expected (and actual) return on plan assets } & 10 \% & 10 \%\end{array}$

- Refer to Exhibit 20-3.What is the pension expense for 2010?

A)$ 95, 000
B)$230, 180
C)$315, 000
D)$365, 360

Question 34

In 2010, the Barbara Company initiated a defined benefit pension plan.It recorded $240, 000 as pension expense and paid $280, 000 to a funding agency.As a result, Barbara will report

A)pension assets of $280, 000 and pension liabilities of $240, 000
B)an accrued liability of $50, 000
C)service cost of $280, 000 and unfunded prior service cost of $40, 000
D)prepaid pension cost of $40, 000
E)none of these

Question 35

Exhibit 20-3 The Grace Company adopted a defined benefit pension plan on January 1, 2010, and prior service credit was granted to employees.The present value of those benefits was calculated to be $1, 351, 800 at that date.The service cost is funded in full at the end of each year, plus an additional amount of $220, 000 is funded each year-end.The unrecognized prior service cost is being amortized by the straight-line method over the remaining 10-year service life of the company's active employees.Additional information relating to the company's pension plan is presented below:
$\begin{array}{lll}&2010&2011\\\text { Service cost (annual) } & \$ 95,000 & \$ 105,000 \\\text { Unrecogrized prior service cost } & & \\\text { amortization } & 135,180 & 135,180 \\\text { Interest cost } & 10 \% & 10 \% \\\text { Expected (and actual) return on plan assets } & 10 \% & 10 \%\end{array}$


-Refer to Exhibit 20-3.What is the pension expense for 2011?

A)$221, 706
B)$325, 000
C)$398, 378
D)$473, 198

Question 36

Exhibit 20-1 Given the following information:
$\begin{array} { | l | l | l | l | } \hline & 2010 & 2011 & 2012 \\\hline \text { Projected benefit obligation } & \$ 600 & \$ 700 & \$ 1,200 \\\hline \text { Plan asset value } & 400 & 800 & 1,100\\\hline\end{array}$ Average remaining service life = 5 years
An unrecognized net loss existed at the beginning of 2010 in the amount of $100.An additional unrecognized net loss of $20 is reported by actuaries as of the end of 2011.

-
Refer to Exhibit 20-1.What amount of loss should be added to pension expense in 2012?

A)$0
B)$2.40
C)$4.00
D)$6.40

Question 37

Exhibit 20-3 The Grace Company adopted a defined benefit pension plan on January 1, 2010, and prior service credit was granted to employees.The present value of those benefits was calculated to be $1, 351, 800 at that date.The service cost is funded in full at the end of each year, plus an additional amount of $220, 000 is funded each year-end.The unrecognized prior service cost is being amortized by the straight-line method over the remaining 10-year service life of the company's active employees.Additional information relating to the company's pension plan is presented below:
$\begin{array}{lll}&2010&2011\\\text { Service cost (annual) } & \$ 95,000 & \$ 105,000 \\\text { Unrecogrized prior service cost } & & \\\text { amortization } & 135,180 & 135,180 \\\text { Interest cost } & 10 \% & 10 \% \\\text { Expected (and actual) return on plan assets } & 10 \% & 10 \%\end{array}$


- Refer to Exhibit 20-3.What is the correct amount of the projected benefit obligation as of December 31, 2011?

A)$ 200, 000
B)$ 493, 378
C)$1, 205, 178
D)$1, 845, 178

Question 38

In 2011, the Marsha Company closed a manufacturing plant.The resulting actuarial loss should be

A)recognized over current and future periods using the straight-line method
B)recognized over current and future periods through adjustments to the service cost and prior service cost
C)included in income for 2011
D)matched to past results with a prior period adjustment

Question 39

Exhibit 20-2 Minnie Co.has an unfunded prepaid/accrued pension cost of $2, 000 (debit balance)at December 31, 2010.The following information pertains to 2011:
$\begin{array}{ll}\text { Pension expense } & \$ 320,000 \\\text { Projected benefit obligation, December 31, } 2011 & 840,000 \\\text { Contributions } & 330,000 \\\text { Plan assets (fair value), December 31, 2011 } & 810,000\end{array}$


- Refer to Exhibit 20-2.The December 31, 2011, adjusting entry should be

A)
Other Comprehensive Income $\quad 30,000$
Accrued/Prepaid Pension Cost $\quad 30,000$
B)
Accrued/Prepaid Pension Cost $\quad$ 30,000
Other Comprehensive Income $\quad$ $\quad$ 30,000
C)
$\begin{array} { c r } \text { Other Comprehensive Income } & 42,000 \\\text { Accrued/Prepaid Pension Cost } & 42,000\end{array}$
D)
Accrued/Prepaid Pension Cost $\quad 40,000$
Other Comprehensive Income $\quad\quad 40,000$

Question 40

ACME has a defined benefit pension plan.ACME is preparing the December 31, 2010 financial statement disclosures related to the plan assets.It should disclose which of the following? I.Expected Return on Plan Assets
II.Actual Return on Plan Assets

A)I
B)II
C)both I and II
D)neither I nor II

Question 41

Vested benefits are

A)estimated benefits
B)not contingent on future service to a company
C)to be received as a lump sum payment
D)lost when employment is terminated

Question 42

Which of the following statements is true?

A)Funding for postretirement health care benefits is legally required, and contributions are tax deductible.
B)Funding for postretirement health care benefits is legally required, but contributions are not tax deductible.
C)Funding for postretirement health care benefits is not legally required, and contributions are not tax deductible.
D)Funding for postretirement health care benefits is not legally required, but contributions are tax deductible.

Question 43

ERISA (Pension Reform Act of 1974)provides guidance for

A)accumulated benefit obligation
B)actual return on plan assets
C)minimum funding during the year
D)projected benefit obligations

Question 44

Current GAAP requires that the financial statements issued by a funding agency for a company's pension plan include all of the following except

A)information about the net assets (at fair value)available for benefits at the end of the plan year
B)a financial statement (on a cash basis)presenting information about the pension payments to retirees
C)a financial statement containing information about the changes during the year in the net assets available for benefits
D)information about the actuarial present value of accumulated plan benefits

Question 45

Unrecognized prior service cost would be reported on the balance sheet and affect the amount(s)reported for

A)accrued/prepaid pension cost only
B)accumulated other comprehensive income only
C)both accrued/prepaid pension cost and accumulated other comprehensive income
D)neither accrued/prepaid pension cost nor accumulated other comprehensive income

Question 46

Corporate employees are expected to retire on average in 25 years and to live 16 years after retiring.The pension plan's interest (discount)rate is 12% and the expected return on plan assets is 10%.Compute the PBO (Projected Benefit Obligation)if total annual benefits expected to be paid out to retirees is expected to be $210, 000.The following factors are available: $\begin{array}{ll}&10\%&12\%\\\text { Present value of an annuity for } 16 \text { years } & 7.824&6.974 \\\text { Present value of } \$ 1 \text { for } 25 \text { years } & .0923&.0589\end{array}$

A)$ 86, 261
B)$ 96, 775
C)$135, 177
D)$152, 653

Question 47

Accounting principles for defined benefit pension plans under IFRS differ from U.S.GAAP in all of the following areas except that under IFRS

A)certain components of pension expense may be reported as a part of different line items in the income statement
B)actuarial gains and losses may be recognized in full in the period in which they occur directly into equity
C)any portion of prior service cost that is not vested must be recognized on the balance sheet as a component of other comprehensive income
D)any portion of prior service cost that is immediately vested must be expensed

Question 48

Samantha Co.has a defined benefit pension plan that has experienced differences between its expected and actual projected benefit obligation.Data on the plan as of January 1, 2010, follow:
$\begin{array}{ll}\text { Unrecogrized net gain } & \$ 88,000 \\\text { Fair value of plan assets } & 250,000 \\\text { Actual projected benefit obligation } & 280,000\end{array}$
There was no difference between the company's expected and actual return on plan assets during 2010.The average remaining service life of the company's employees is 12 years.
Required:
Determine the amount of the net gain or loss to be included in pension expense for 2010 and indicate whether it is an increase or decrease in the pension expense calculation.

Question 49

A list of terms (a-i)and a list of descriptive phrases (1-9)related to pension accounting are provided below:
a. actuary
b. expectedretum on plan assets
c. defined benefit plan
d. noncontribut ory plan
e. prior service cost
f. service cost
g. accumulated benefits approach
h. pension expense
i.Pension Reform Act of 1974 (ERISA)

Required:
Match each item to its descriptive phrase by placing the appropriate letter in the space provided.

Question 50

Matilda, Inc.amended its defined benefit pension plan as of January 1, 2010.Matilda received a report from its actuary stating that at the beginning of 2010 unrecognized prior service cost resulting from the amendment amounted to $144, 000.The company's work force was composed of twelve people.Four were expected to retire at the end of 2012.Two were expected to retire at the end of 2014, two more at the end of 2016, and four at the end of 2018.
Required:
Using the years-of-future-service method, compute the amount of prior service cost to be amortized in the first year.

Question 51

Which of the following items attributable to a defined benefit pension plan would be recognized on a company's balance sheet? $\begin{array}{llll}&\text { ProjectedBenefit } & \text { Pension Plan } & \text { Prepaid Pension: } \\&\text { Obligation } & \text { Assets } & \text { Costs }\\\text { I. } & \text { Yes } & \text { Yes } & \text { Yes } \\\text { II. } & \text { Yes } & \text { Yes } & \text { No } \\\text { III. } & \text { Yes } & \text { No } & \text { No } \\\text { IV. } & \text { No } & \text { No } & \text { Yes }\end{array}$

A)I
B)II
C)III
D)IV

Question 52

Tina Company had the following information related to its pension plan:
$\begin{array}{|l|l|l|l|}\hline&\text { Beginning of }\\\hline2010&2011&2012\\\hline \text { Projected benefit obligation } & \$ 6,000 & \$ 7,990 & \$ 9,200 \\ \hline \text { Plan assets } & 8,400 & 8,700 & 8,800 \\\hline \text { Urrecognized net lossreported by actuary } & & 990 & \\\hline\end{array}$
The average remaining service life = 3 years
An additional unrecognized net loss of $990 was reported as of January 1, 2011 (see table).This amount has been included in the January 1, 2011.projected benefit obligation balance.
Required:
Compute the amount of unrecognized loss that should be included in pension expense in:
a. 2011
b. 2012

Question 53

Disclosures for vested benefits

A)are not required
B)are related to the projected benefit obligation
C)are related to the accumulated benefit obligation
D)are related to the plan assets

Question 54

The Pension Benefit Guaranty Corporation's purpose is to

A)allow companies to exit bankruptcy.
B)insure defined contribution pension plans.
C)insure defined benefit pension plans.
D)guarantee taxpayers that the federal government will pay pension benefits.

Question 55

The expense for other postretirement benefits, such as health care benefits, dental benefits, and eye care benefits, currently is accounted for

A)on an accrual basis
B)on a cash basis
C)on either a cash basis or an accrual basis; both methods are acceptable
D)by footnote disclosure only

Question 56

Disclosures for a defined benefit pension plan should include which of the following? $\begin{array}{ll}\text { I. } & \text {number of beneficiaries } \\\text { II. } & \text {reconciliation of the encling value of the projected benefit obligation: } \\\text { III. } & \text {reconciliation of the ending fair value of the plan assets }\\\text { IV. } & \text { the composition of plan assets } \\\text { V. } & \text { the discount rate used } \\\text { VI. } & \text { expectedlong term rate of return on plan assets }\end{array}$

A)I, II, III, IV
B)I, III, V, VI
C)II, III, V, VI
D)III, IV, V, VI

Question 57

Current GAAP requires that the net gain or loss from a settlement or curtailment be included in the

A)statement of retained earnings
B)income statement
C)balance sheet
D)statement of cash flows

Question 58

Because of significant government funding of benefits to retirees, it is likely that total pension costs are

A)more material for U.S.companies than foreign companies
B)more material for foreign companies than U.S.companies
C)the same for all companies worldwide
D)not material for any companies worldwide

Question 59

Which of the following statements regarding postretirement benefits other than pensions is true?

A)A liability for postretirement benefits other than pensions is not required to be reported on the balance sheet.
B)The interest component of the net postretirement benefit expense is based on the accumulated postretirement benefit obligation (APBO).
C)The interest component of the net postretirement benefit expense is based on the expected postretirement benefit obligation (EPBO).
D)An intangible asset for other postemployment benefits (OPEB)is required to be reported on a company's balance sheet.

Question 60

Mandy Co.has a defined benefit pension plan for its employees.The plan was amended at the beginning of 2010 which increased benefits based on services rendered by certain employees in prior periods.The actuary has reported that unrecognized prior service cost resulting from the amendment is $385, 000.Five employees expect to receive the increased benefits.Shown below is a schedule of the employees and their expected years of future service:
$\begin{array}{ll}&\text {Expected Years of}\\\text {Employee No.}& \text {Future Service}\\ 1 & 5 \\2 & 6 \\3 & 7 \\4 & 8 \\5 & 9\end{array}$
Required:
Using the straight-line method:
a. Compute the average remaining service life.
b. Determine the amount of unrecopnized prior service cost to be included in the 2010 persion expense calculation.

Question 61

A list of descriptive phrases related to pension plan accounting is shown below:
Required:
In the space preceding each phrase, indicate whether the item described must be disclosed per the requirements of current GAAP regarding an employer's disclosures about pensions and other postemployment benefits.Use "Y" if the item is a required disclosure and "N" if it is not a required disclosure.

Question 62

Betsy Company estimated that at the end of seven years, it will be necessary to have $90, 000 available in a pension fund.The correct interest rate was 9%.Actuarial information for seven periods at 9% follows:
$\begin{array}{llr} \text { Future amount of 1 } &1.8280\\ \text { Future amount of ordinary annuity of 1} &9.2004\\ \text { Present value of 1 } &0.5470\\ \text { Present value of ordinary annuity of 1 } &5.0330\\\end{array}$
Required:
Compute the amount that the company must deposit at the end of each year in order to have the necessary funds available at the end of the seventh year.

Question 63

In addition to providing pensions to their employees, many companies also offer postemployment benefits.These are benefits going to former employees after employment but before retirement.
Required:
Describe how the cost of these benefits is to be accounted for under current GAAP.

Question 64

Current GAAP requires that a company with a defined benefit pension plan disclose a reconciliation of the beginning and ending balances of the projected benefit obligation.
Required:
State the items that must be included in this disclosure.

Question 65

One type of post-retirement benefit other than pensions is healthcare benefits.
Required:
Discuss the major differences between postretirement healthcare benefits and pensions.