Question 1

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Overfunded pension plan

Accepted Answer

An overfunded pension plan is one where the pension plan assets exceed the PBO (Projected Benefit Obligation), meaning that the plan has more assets than liabilities to cover future pension payments.

The other phrases describe different scenarios that may impact a pension plan, but they do not necessarily result in an overfunded plan. Plan amendments (A) or changes in assumptions (D) may increase or decrease the PBO, but do not necessarily affect whether the plan is overfunded or underfunded. A loss in other comprehensive income (B) could result from an underfunded plan, while a gain in other comprehensive income (C) may result from an overfunded plan, but this phrase alone is not conclusive.

Question 2

Service cost with regard to pension plans:

Accepted Answer

Service cost refers to the present value of the benefits earned by employees in a year, which increases the projected benefit obligation (PBO) and ultimately leads to an increase in pension expense. This is because the employer has to provide for the increased retirement benefits in the future. However, service cost does not impact plan assets directly.

Question 3

On January 1, 2018,Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2018 and 2019 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2018. 
-An employer reports a pension loss when:

Accepted Answer

An employer reports a pension loss when the return on plan assets is lower than expected. In this case, the expected return on plan assets is 8%, but if the actual return is lower than 8%, then the employer would experience a pension loss. A change in assumptions that causes the projected benefit obligation to be less than expected would result in a pension gain for the employer. Retiree benefits paid out more than expected would also result in a loss, but this does not appear to be the case in this scenario. The accumulated benefit obligation is not relevant to the calculation of a pension loss.

Question 4

A 401k plan:

Accepted Answer

A 401k plan is a type of defined contribution pension plan where employees have the option to contribute a portion of their salary to their retirement account. The employer may also contribute, but they are not required to do so. This type of plan does not create a liability for the employer, but rather shifts the responsibility for retirement savings to the employee.

Question 5

On January 1, 2018,Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2018 and 2019 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2018. 
-In the income statement, companies report the service cost component of pension expense:

Accepted Answer

The service cost component of pension expense is part of the total compensation costs incurred by the company for the current year. It is a current cost of providing employee benefits and is therefore reported as part of the operating expenses on the income statement. The other components of pension expense, such as interest cost, expected return on plan assets, and amortization of prior service cost or gains/losses, are reported separately and outside the subtotal of income from operations.

Question 6

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Pension Benefit Guaranty Corp.

Accepted Answer

The Pension Benefit Guaranty Corporation (PBGC) was created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect the retirement incomes of workers in private-sector defined benefit pension plans.

Question 7

On January 1, 2018,Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2018 and 2019 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2018.
- An employer reports the components of pension expense outside the subtotal of income from operations with the exception of:

Accepted Answer

According to the text, service cost is reported outside the subtotal of income from operations along with other components of pension expense, except for the actual return on plan assets. Therefore, options B, C, and D are not the correct choice.

Question 8

On January 1, 2018,Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2018 and 2019 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2018.
- What pension liability should Gillock report in its balance sheet for the year ended December 31, 2019?

Accepted Answer

11ea937b_35bb_025c_a419_158bf84118ff_TB2599_00 Net pension liability: $1,260,000 - 898,560 = $361,440

Question 9

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Funded status

Accepted Answer

Funded status is defined as the difference between the Projected Benefit Obligation (PBO) and the actual assets held by a pension plan.

Question 10

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Prior service cost

Accepted Answer

Prior service cost is caused by plan amendments, which grant increased benefits for employee service provided in prior periods.

Question 11

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Return on plan assets exceeds the expectation

Accepted Answer

When the return on plan assets exceeds expectations, it is recognized as a gain in other comprehensive income, reflecting the positive performance of the investments related to the pension plan.

Question 12

The projected benefit obligation:

Accepted Answer

The projected benefit obligation (PBO) is indeed the present value of retirement benefits where the calculation includes assumptions about future salary increases. This is because PBO considers the effect of future salary increases as part of its estimation process, making it a more comprehensive measure of a pension plan's liability compared to other methods that might not account for future salary projections.

Question 13

The balance of the plan assets can change due to:

Accepted Answer

The balance of the plan assets changes due to investment returns, employer contributions, and the payment of benefits. These factors directly affect the financial position of the plan assets by either increasing the assets (through investment returns and employer contributions) or decreasing them (through the payment of benefits).

Question 14

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Gain on plan assets

Accepted Answer

The answer of Listed below are five terms followed by...

Question 15

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Accumulated benefit obligation

Accepted Answer

The Accumulated Benefit Obligation (ABO) is calculated based on employees' current pay levels, without assuming future salary increases, which is why D is the correct match.

Question 16

Harvey Hotels has provided a defined benefit pension plan for its employees for several years. At the end of the most recent year, the following information was available with regard to the plan: service cost: $6.2 million, expected return on plan assets: $1.2 million, actual return on plan assets: $1 million, interest cost: $1.4 million, payments to retired employees: $2 million, and amortization of prior service cost (created when the pension plan was amended causing a drop in the projected benefit obligation): $1.1 million. What amount should Harvey Hotels report as pension expense in its income statement for the year?

Accepted Answer

$\begin{array}{lr}
\$ \text { in millions } \
\text { Service cost } & \$ \quad 6.2 \
\text { Interest cost } & 1.4 \
\text { Expected return on plan assets } & (1.2) \
\text { Amortization of PSC } & 1.1 \
\text { Pension expense } & \$ 7.5
\end{array}$

Question 17

Blue Company has a plan whereby it pays for health care insurance for all employees after they retire. Red Company has a defined benefit pension plan for its employees. With respect to these plans, which of the following statements is not true?

Accepted Answer

Federal law requires a company to fund a defined benefit pension plan; this is not so for a health care plan.

Question 18

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Return on plan assets less than the expectation

Accepted Answer

Return on plan assets being less than expected results in a loss that is recognized in other comprehensive income, reflecting the decrease in the value of pension plan assets compared to what was anticipated.

Question 19

On January 1, 2018, Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2018 and 2019 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2018.
- What amount of pension expense should Gillock report in its income statement for the year ended December 31, 2019?

Accepted Answer

11ea937b_35bb_025d_a419_e78dfb2f23b0_TB2599_00

Question 20

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term.
-Loss-other comprehensive income

Accepted Answer

The answer of Listed below are five terms followed by...

Quiz 17: Pensions and Other Postretirement Benefits

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Overfunded pension plan

Service cost with regard to pension plans:

A 401k plan:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Pension Benefit Guaranty Corp.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Funded status

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Prior service cost

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Return on plan assets exceeds the expectation

The projected benefit obligation:

The balance of the plan assets can change due to:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Gain on plan assets

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Accumulated benefit obligation

Blue Company has a plan whereby it pays for health care insurance for all employees after they retire. Red Company has a defined benefit pension plan for its employees. With respect to these plans, which of the following statements is not true?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Return on plan assets less than the expectation

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Loss-other comprehensive income