Deck 19: Post-Employment Benefits

Question 1

ABC has a non-contributory, defined benefit pension plan.Data for 2014 were as follows: Pension plan assets (at fair value)January 1, 2014, $240,000, and December 31, 2014, $285,000; APO, January 1, 2014, $243,000 and December 31, 2014, $345,000.The accrued pension obligation was underfunded at the end of 2014 in the amount of:

A)$60,000.
B)$15,000.
C)$30,000.
D)$45,000.

Answer 1

A

Question 2

Jamieson's balance sheet as per IFRS for Year 1 would show an accumulated other comprehensive income (AOCI)balance of:

A)$2,700 dr.
B)$3,000 dr.
C)$3,000 cr.
D)$2,700 cr.

Answer 2

A

Question 3

Choose the correct statement concerning pensions (defined benefit)and other post-employment benefits.

A)Other post-employment benefits payments are more difficult to predict than are pension payments.
B)The entire other post-employment benefits obligation must be recognized in the balance sheet whereas, in most cases, the pension obligation is not.
C)Pension expense has six components; other post-employment benefits expense has only five components.
D)Only pensions require a reconciliation of funded status to be disclosed.

Answer 3

A

Question 4

Today is John's 57th birthday and he has served 14 years for his firm.John is expected to retire on his 65th birthday.His firm expects to incur $5,000 of annual net health care claims costs for John beginning one year after his retirement date and continuing each year for a total of seven years (assume seven end of year payments in all).To be fully eligible for these benefits, John must work 20 years.Compute expected post-retirement benefit obligation for John today if the discount rate is 8%.

A)$18,916
B)$12,322
C)$14,064
D)$15,244

Question 5

Costs related to a new pension plan that are necessary to "catch up" for services rendered prior to the inception of the pension plan are classified as:

A)actuarial losses.
B)past service costs.
C)service costs.
D)retroactive deferred charge.
E)transition costs.

Question 6

All of the following are relevant policy disclosures suggested by the AcSB except:

A)changes to reserves and other comprehensive income if any.
B)a reconciliation of the defined benefit obligation from the beginning to the end of the year.
C)amount of pension expense for the period, broken down by component.
D)a reconciliation of relevant pension amounts.
E)the number of employees.

Question 7

The amount of the expected return on plan assets is usually computed by multiplying the:

A)average carrying value of the plan assets by the expected long-term rate of return on plan assets.
B)ending market-related value of the plan assets by the expected long-term rate of return on plan assets.
C)beginning carrying value of the plan assets by the actuary's interest rate.
D)beginning market-related value of the plan assets by the expected long-term rate of return on plan assets.

Question 8

Recognition of pension expense is primarily based on the:

A)matching principle.
B)cost principle.
C)revenue principle.
D)full disclosure principle.

Question 9

Pension data for ABC for three separate cases were: The funded status of the APO for each case is:

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Question 10

RST's pension plan provides retirement benefits of $8,000 per year to all employees who have worked for the company for at least 10 years.Contributions to the plan are made 75 percent by RST and 25 percent by the employees.The pension plan is characterized as both:

A)contributory and defined benefit.
B)defined contribution and contributory.
C)defined contribution and defined benefit.
D)funded and defined contribution.

Question 11

Benefits pursuant to a pension plan that are not contingent upon an employee's continuing service are referred to as:

A)underfunded.
B)vested.
C)funded.
D)insured.

Question 12

When a settlement gain or loss arises due to closing a business segment it is recognized as a debit or credit to (in):

A)other costs within discontinued operations.
B)accrued/prepaid pension cost.
C)accrued pension obligation.
D)pension expense.

Question 13

Bonnie joined a firm at age 25 and is expected to retire at 57.The post-retirement benefit plan provides the following coverage given the indicated years of service after age 30. What is Bonnie's full eligibility date (her age when fully eligible)?

A)60
B)55
C)57
D)50

Question 14

Conceptually, the employer's current pension obligation if the pension plan is discontinued is the:

A)vested benefit obligation.
B)accumulated benefit obligation.
C)accrued pension obligation.
D)underfunded pension cost.

Question 15

A firm has a $40,000 balance in its pension liability account.This means:

A)pension expense recognized to date exceeds plan assets at fair value.
B)accrued pension obligation is less than plan assets at fair value.
C)pension expense recognized to date exceeds total contributions to the pension plan to date.
D)the plan is underfunded.

Question 16

All of the following are relevant policy disclosures suggested by the AcSB except:

A)actual return on plan assets during the year.
B)the risk profile of the employee group.
C)description of how expected return on pension plan assets is calculated.
D)a reconciliation of pension plan assets from the beginning to the end of the year.
E)principle actuarial assumptions.

Question 17

Pension related estimates (not funding data)are provided by the:

A)employee union.
B)employer company.
C)pension fund trustee.
D)independent actuary.

Question 18

The funded status of Jamieson's defined benefit plan as at December 31st, Year 1 is:

A)$47,100 underfunded.
B)$22,300 underfunded.
C)$24,800 overfunded.
D)$22,300 overfunded.

Question 19

Jamieson's pension expense as per IFRS for Year 2 would be:

A)$5,338.
B)$1,338.
C)$49,438.
D)$4,000.

Question 20

Employers who provide contractual termination benefits must recognize a loss and a related liability when:

A)the termination occurs.
B)it is probable that employees will be entitled to the benefit and the amount of the benefit can be reasonably estimated.
C)the termination benefit can be reasonably estimated.
D)the employees accept the termination benefit offer.

Question 21

Factors affecting estimates of benefits under a post-retirement health care plan include all of the following except:

A)plan demographics.
B)per capita claims cost by age.
C)health care cost trend rates.
D)discount rate.

Question 22

The funded status of Jamieson's defined benefit plan as at December 31st, Year 2 is:

A)$26,576 overfunded.
B)$48,876 underfunded.
C)$26,576 underfunded.
D)$48,876 overfunded.

Question 23

Jamieson's balance sheet as per IFRS for Year 1 would show a net:

A)defined pension liability of $22,300.
B)defined pension asset of $47,100.
C)defined pension liability of $24,800.
D)defined pension asset of $22,300.

Question 24

Gains and losses from plan settlements and curtailments should be:

A)deferred to the balance sheet.
B)amortized over a systematic and rational manner.
C)recognized in income immediately.
D)amortized over the average remaining service period.

Question 25

The accrued obligation at the beginning of the year was $456,000 and the current service cost for the year is $67,000.Assuming an interest factor of 6%, what is the accrued obligation at the end of the year?

A)$523,000
B)$389,000
C)$554,380
D)$550,360

Question 26

Changes in defined benefit pension plans that reduce the expected years of future service of present employees are:

A)settlements.
B)curtailments.
C)terminations.
D)adjustments.

Question 27

When a company offers termination benefits as the result of a restructuring plan, the special termination benefits should be:

A)amortized over the average remaining service period.
B)amortized over a systematic and rational manner.
C)recognized with normal pension expense.
D)included with the restructuring costs on the income statement.

Question 28

Timu joined the firm 12 years ago and is 42 today.The firm has a post-retirement health care plan with the following coverages for retirees: Age above 65 at retirement and 30 years of service = 100% coverage Age 60-65 at retirement and 30 years of service = 75% coverage
Timu is expected to retire at age 63.The present value today of 100% post-retirement health care coverage for Timu is $20,000, considering life expectancy and other factors.The present value of 75% coverage is $14,000.What is the accumulated post-retirement benefit obligation for Timu today?

A)$5,600
B)$8,000
C)$14,000
D)$20,000

Question 29

Jamieson's defined benefit obligation as at December 31st, Year 2 would be:

A)$58,526.
B)$50,526.
C)$54,526.
D)$46,526.

Question 30

Jamieson's pension expense as per IFRS for Year 1 would be:

A)$43,500.
B)$44,700.
C)$44,100.
D)$40,600.

Question 31

XYZ sponsors a defined contribution plan for its employees.On January 1, Year 1, the company paid $120,000 to the plan's trustee.The trustee called for annual payments of $90,000 to be made annually into the plan.Which of the following best describes the effects of this plan on XYZ's Year 1 financial statements?

A)XYZ would record pension expense of $90,000 and a non-current asset of $30,000.
B)XYZ would record pension expense of $90,000 and a current asset of $30,000.
C)XYZ would record pension expense of $120,000 and no balance sheet amounts.
D)XYZ would record pension expense of $120,000 and a current asset of $30,000.

Question 32

In accounting for pension costs, any difference between current year's pension expense and contribution into the pension trust should be reported as a(n):

A)offset to pension plan assets.
B)accrued actuarial liability.
C)operating expense of the current period.
D)deferred pension liability/cost.

Question 33

Changes in defined benefit pension plans that eliminate or reduce, for a significant number of employees, the accrual of defined benefits for some or all of their future services are:

A)eliminations.
B)curtailments.
C)terminations.
D)settlements.

Question 34

The total gain or loss due to a curtailment should be recognized:

A)if a loss, when the employees terminate or the curtailment occurs.
B)when it is probable that a curtailment will occur and the effects are reasonably estimable, for either a gain or a loss.
C)immediately.
D)if a gain, when it is probable that a curtailment will and the effects are reasonably estimable.

Question 35

The balance of pension plan assets at fair value, as of any measurement date, reflects the cumulative: (Choose from the four Choices provided below)

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Question 36

Funding a pension plan may be handled as follows:

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Question 37

Choose the most complete description of the possible relationship(s)between the discount rate (D)and the expected long-term rate of return on plan assets (R)used for defined benefit pension plans.

A)D = R
B)D > R
C)D < R
D)D can be equal to, greater than, or less than R for any given firm

Question 38

When a pension plan is ended, the obligation is settled by transferring the assets to:

A)a trustee.
B)a financial bank.
C)each individual.
D)None of these choices are correct.

Question 39

Under IFRS, net interest (finance)expense (revenue)with respect to defined benefit plans is best described as follows:

A)The actual return on plan assets must be reflected as a reduction of pension expense or as finance revenue.
B)A discount rate is applied to the opening projected benefit obligation amount to impute an interest (finance)charge.This amount must be reflected as an increase to pension expense.
C)The net interest (finance)expense (revenue)with respect to defined benefit plans is the difference between the opening fair values of the plan assets and accumulated benefit obligation.If the value of the accumulated benefit obligation exceeds the fair value of the plan assets on that date, there will be an increase to pension expense.If the reverse is true, will be a decrease to pension expense.
D)The net interest (finance)expense (revenue)with respect to defined benefit plans is the difference between the opening fair values of the plan assets and projected benefit obligation.If the value of the projected benefit obligation exceeds the fair value of the plan assets on that date, there will be an increase to pension expense or finance (interest)expense.If the reverse is true, will be a decrease to pension expense or an increase to finance (interest)revenue.

Question 40

The vested benefit of an employee in a pension plan represents benefits:

A)to be paid to the retired employee in the current year.
B)to be paid to the retiring employee in the next year.
C)accumulated in the pension plan (at fair value).
D)that are not contingent on the employee continuing in the service of the employer.

Question 41

Under the simplified approach to accounting for defined benefit pension plans under ASPE there may be a pension asset ceiling.

Question 42

Jamieson's pension expense as per ASPE for Year 1 would be:

A)$40,600.
B)$46,800.
C)$41,400.
D)$44,700.

Question 43

Jamieson's pension expense as per ASPE for Year 2 would be:

A)$5,338.
B)$9,976.
C)$4,638.
D)$700.

Question 44

For a given employee group, the accumulated benefit method of funding for defined benefit plans results in increasingly larger contributions to the fund over time when compared to both the projected unit credit and level contribution methods.Assume that average salaries increase over time.

Question 45

Past service costs that have vested must be deferred and amortized through pension expense over time, while gains or losses on plan curtailments must be immediately recognized.

Question 46

The accrued obligation at the beginning of the year was $289,000 and the current service cost for the year is $92,000.Assuming an interest factor of 8%, what is the accrued obligation at the end of the year?

A)$381,000
B)$404,120
C)$403,860
D)$363,660

Question 47

A trustee is independent and receives the pension contribution from the employer and invests it in accordance with provincial regulations.

Question 48

Jamieson's balance sheet as per IFRS for Year 2 would show a net:

A)defined pension asset of $26,576.
B)defined pension asset of $48,876.
C)defined pension liability of $48,876.
D)defined pension liability of $26,576.

Question 49

Current costs of a pension plan that occur each year due to service credits earned after the inception of the plan are called:

A)Interest costs.
B)service costs.
C)Past service costs.
D)actuarial losses.

Question 50

Current service costs are the main component of any defined contribution plan.

Question 51

A change in actuarial assumptions is the only possible cause for an actuarial gain or loss.

Question 52

Jamieson's defined benefit obligation as at December 31st, Year 1 would be:

A)$44,100.
B)$47,100.
C)$44,700.
D)$40,600.

Question 53

Pension plans that are registered meet Revenue Canada requirements and hence qualify for tax advantages.

Question 54

For income tax purposes, an employee would prefer to make contributions to a qualified pension plan than to a nonqualified pension plan.

Question 55

Post-retirement benefits other than pensions must now be accounted for in a manner similar the way pensions are accounted for.

Question 56

The full eligibility date for an employee covered in a non-pay related other post-employment benefits plan is:

A)the date the employee attains his or her final salary.
B)the date the employee is eligible for the benefits he or she is expected to receive.
C)the retirement date.
D)the date the employee is eligible for the maximum benefit the plan has to offer.

Question 57

Under both IFRS and ASPE, the balance in net pension liability (asset)account will equal the funded status of the registered defined benefit plan in question.

Question 58

Jamieson's balance sheet as per IFRS for Year 2 would show an accumulated other comprehensive income (AOCI)balance of:

A)$4,638 dr.
B)$3,300 dr.
C)$4,638 cr.
D)$3,300 cr.

Question 59

In order to be registered, a pension plan must be trusteed.

Question 60

All three funding approaches result in full funding of a pension plan over time.

Question 61

In a non-contributory, defined benefit pension plan, the plan assets are composed of the employer's cumulative contributions less cumulative pension benefits paid from the fund.

Question 62

IFRS requires that the projected unit credit method be used for both funding purposes and accounting estimates.

Question 63

Current service cost is usually the largest single component of pension expense under a defined benefit pension plan.

Question 64

Total net pension expense recognized over the life of a pension plan will be in excess of the total amount paid into the pension fund.

Question 65

A pension plan is fully funded when the assets in the pension fund are adequate to pay the current retirees.

Question 66

Employees are not allowed to make contributions to a defined contribution pension plan.

Question 67

Pension plans are drafted to meet Revenue Canada requirements so that the benefits received after retirement are not subject to income tax and the contributions by the employer are not a taxable benefit to the employee.

Question 68

A pension plan that gives an employee the right to retirement benefits which are not contingent upon the employee remaining with the company provides vesting benefits to the employee.

Question 69

The accumulated benefit and projected unit credit methods both result in increasing employer contributions to the pension plan over time.

Question 70

A non-funded pension plan is one where the employee must bear a part of the cost of the plan.

Question 71

When a pension plan is not trusteed, a company must report its pension plan assets and accrued pension liability on the balance sheet.

Question 72

An employee of XYZ will receive retirement benefits of $1,000 per month if the employment period is 15 years.However, if the employment period is 20 years, the retirement benefits will be $1,300 per month.This is an example of a defined contribution pension plan.

Question 73

The accumulated benefit and projected unit credit methods both take into account employee salary changes over time.

Question 74

Under IFRS, net interest (finance)revenue or expense on defined benefit obligations must always be included within pension expense.

Question 75

In a defined contribution plan, employers run the risk of high pension contributions.

Question 76

Under a defined contribution pension plan, forfeitures are estimated in advance.

Question 77

Under the simplified approach to accounting for defined benefit pension plans under ASPE, all past service costs and unrecognized actuarial gains and losses must all flow through pension expense immediately.

Question 78

In a defined contribution pension plan the retirement benefits to the employee are not defined.

Question 79

Pension plans are normally registered with the pension commissioner in the province of jurisdiction.

Question 80

Contributions made by an employer to a qualified pension plan usually are taxable to the employee at that time.