Deck 14: Pensions and Other Postretirement Benefits

Question 1

A pension liability is reported when
E)Accumulated other comprehensive income exceeds the fair value of pension plan assets.
F)he projected benefit obligation exceeds the fair value of pension plan assets.
G)The accumulated benefit obligation is less than the fair value of pension plan assets. h.The pension expense reported for the period is greater than the funding amount for the same period

Answer 1

B

Question 2

A corporation has a defined-benefit plan.A pension liability will result at the end of the year if

A)The projected benefit obligation exceeds the fair value of the plan assets.
B)The fair value of the plan assets exceeds the projected benefit obligation.
C)The amount of employer contributions exceeds the pension expense.
D)The amount of pension expense exceeds the amount of employer contributions

Answer 2

A

Question 3

Gains and losses that relate to the computation of pension expense should be

A)Recorded only if a loss is determined.
B)Recorded currently as an adjustment to pension expense in the period incurred.
C)Amortized over a 15-year period.
D)Recorded currently and in the future by applying the corridor method which provides the amount to be amortized

Answer 3

D

Question 4

In accounting for a pension plan,any difference between the pension cost charged to expense and the payments into the fund should be reported as

A)An offset to the liability for prior service cost.
B)Accumulated other comprehensive income
C)A pension asset or liability.
D)Other comprehensive income

Question 5

In determining whether to accrue employee's compensation for future absences,among the conditions that must be met are that the obligation relates to rights that Accumulate Vest

A)No No
B)No Yes
C)Yes No
D)Yes Yes

Question 6

In a defined-benefit plan,the process of funding refers to

A)Determining the projected benefit obligation.
B)Determining the amount that might be reported for pension expense.
C)Determining the accumulated benefit obligation.
D)Making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims.

Question 7

According to SFAS No.87,"Employer's Accounting for Pensions," gains and losses should be

A)Fully allocated to current and future periods
B)Offset against pension expense in the year of occurrence
C)Allocated if any unrecognized gain or loss at the beginning of the year is in excess of 10 percent of the greater of the projected benefit obligation or the market value of the plan assets
D)Disclosed in a note to the financial statements only

Question 8

According to SFAS No.87,prior service costs should be

A)Charged to retained earnings as a cost relating to the past
B)Amortized over the service period of each employee expected to receive benefits
C)Taken into consideration only by expensing interest on the unfunded amount
D)Recorded in full as a liability at their discounted present value

Question 9

The accumulated benefit obligation measures

A)The pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.
B)The level cost that will be sufficient,together with interest to provide the total benefits at retirement.
C)The shortest possible period for funding to maximize the tax deduction.
D)The pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels

Question 10

Which of the following components of pension expense could result in a decrease to the annual pension expense amount?

A)Service Cost.
B)Actual return on plan assets.
C)Interest on the liability.
D)Amortization of prior service cost

Question 11

If the projected benefit obligation of a defined benefit pension plan exceeds the fair value of the pension plan assets,the employer must report

A)The difference as a liability in the balance sheet and a corresponding adjustment to the amount of pension expense reported in earnings.
B)The difference as a liability in the balance sheet and a corresponding adjustment to other comprehensive income,net of deferred income taxes.
C)The difference as an asset in the balance sheet and a corresponding adjustment to the amount of pension expense reported in earnings.
D)The difference as an asset in the balance sheet and a corresponding adjustment to other comprehensive income,net of deferred income taxes.

Question 12

In accounting for a defined-benefit pension plan

A)The employer's responsibility is simply to make a contribution each year based on the formula established in the plan.
B)The expense recognized each period is equal to the cash contribution.
C)The liability is determined based upon known variables that reflect future salary levels promised to employees.
D)An appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised

Question 13

APB Opinion No.8 set minimum and maximum limits on the annual provision for pension cost.An amount that was always included in the calculation of both the minimum and the maximum limit is

A)Normal cost
B)Amortization of past service cost
C)Interest on unfunded past and prior service costs
D)Retirement benefits paid

Question 14

The interest on the projected benefit obligation component of pension expense

A)May be stated implicitly or explicitly when reported.
B)Reflects the incremental borrowing rate of the employer.
C)Reflects the rates at which pension benefits could be effectively settled.
D)Is the same as the expected return on plan assets

Question 15

In a defined benefit plan,the amount of annual funding depends on

A)Compensation levels.
B)Interest earnings.
C)Turnover
D)All of the above

Question 16

The funded status of a defined benefit pension plan is equal to the

A)Vested benefit obligation minus the fair value of the pension plan assets.
B)Accumulated benefit obligation minus the fair value of the pension plan assets.
C)Projected benefit obligation minus the fair value of the pension plan assets.
D)Projected benefits plus the fair value of the pension plan assets minus employer contributions to the pension plan.

Question 17

According to SFAS No.87,which of the following is never recorded as a component of annual pension cost?

A)Amortization of the intangible asset recorded as the offset to the minimum pension liability
B)Amortization of prior service cost
C)Amortization of gains and losses
D)Amortization of the transition amount

Question 18

In accounting for a pension plan,any difference between the pension cost charged to expense and the payments into the fund should be reported as

A)An offset to the liability for prior service cost
B)Accrued or prepaid pension cost
C)An operating expense in this period
D)An accrued actuarial liability

Question 19

The actual return on plan assets

A)Is equal to interest expenses accrued each year on the projected benefit obligation,just as it does on any discounted debt.
B)Is equal to the expected rate of return times the fair value of the plan assets at the beginning of the period.
C)Is equal to the change in the fair value of the plan assets during the year.
D)Includes interest,dividends,and changes in the fair value of the fund assets

Question 20

Benefits under a pension plan that are not contingent upon an employee's continuing service are

A)Granted under a plan of defined contribution
B)Based upon terminal funding
C)Actuarially unsound
D)Vested

Question 21

Which of the following is not a difference between defined benefit pension plans and other postretirement benefits OPBs)?

A)Unlike defined benefit pension plan payments,there is no cap on the amount of OPBs benefit to be paid to participants.
B)Unlike defined benefit pension plans,management promises OPBs payments in exchange for current services.
C)Unlike defined benefit pension plans,employees do not accumulate additional OPBs benefits with each year of service.
D)Unlike defined benefit pension plans,OPBs do not vest.

Question 22

The funded status of a defined benefit pension plan is reported in the balance sheet.

A)As an asset,if the pension plan is underfunded.
B)As a liability,if the pension plan is underfunded.
C)Because it measures the minimum pension plan liability.
D)When it exceeds the projected benefit obligation.

Question 23

The corridor approach

A)Is used to determine how much interest to add to the service cost and amortization of prior service in order to calculate pension expense for the period.
B)Is used to determine the minimum amount of accumulated unamortized net gains or losses that must be amortized during the accounting period.
C)Is used to determine the amount of prior service cost to expense each accounting period.
D)Is use to determine the pension plan's funded status.

Question 24

Benefits that are not contingent on the employee continuing in the service of the company are

A)Accumulated benefits.
B)Projected benefits.
C)Benefits earned to date.
D)Vested benefits.

Question 25

The main purpose of the Pension Benefit Guaranty Corporation is to

A)Pay pension to participants of failed pension plans
B)Require a voluntary termination of a pension plan whenever the risks related to nonpayment of the pension obligation seem high.
C)Require plan administrators to publish a comprehensive description and summary of their plans.
D)Require minimum funding of pensions

Question 26

A company that maintains a defined-benefit pension plan for its employees should report a pension asset or liability on each balance sheet date equal to the

A)Funded status relative to the projected benefit obligation.
B)Projected benefit obligation.
C)Accumulated benefit obligation.
D)Plan's vested benefits

Question 27

Some theorists argue that the best measure of the employer's defined benefit pension plan obligation is the accumulated benefit obligation.

A)Since the accumulated benefit obligation is measured using current salaries,it represents the conservative floor for a company's pension obligation to its employees.
B)It is consistent with the measurement of pension expense.
C)Since the accumulated benefit obligation is measured using future salaries,it represents the conservative floor for a company's pension obligation to its employees.
D)The accumulated benefit obligation measures the present value of the amounts that employees will receive from the pension plan once they retire.

Question 28

The expected postretirement benefit obligation EPBO)is

A)Similar to the defined benefit pension plan's projected benefit obligation because it is the obligation attributable to employee service rendered to date.
B)Used to calculate the interest component of OPBs expense before full eligibility is achieved.
C)Recognized over the life expectancy of the employees when most participants are fully eligible to receive benefits.
D)The actuarial present value of the total benefits expected to be paid assuming full eligibility is achieved.

Question 29

Whenever a defined-benefit pension plan is amended and credit is given to employees for their years of service provided before the date of amendment

A)Both the pension expense and the projected benefit obligation are usually relatively more than the previous amount
B)Both the pension expense and the projected benefit obligation are usually relatively smaller than the previous amount
C)Both the pension expense and the projected benefit obligation are usually the same as previous amount
D)The expected change cannot be determined