Deck 20: Accounting for Pensions and Postretirement Benefits

Question 1

The accumulated benefit obligation bases the deferred compensation amount on both vested and nonvested service using future salary levels.

Answer 1

False

Question 2

If a company grants plan amendments, it allocates the past service cost of providing these retroactive benefits to pension expense in the future, specifically to the remaining service-years of the affected employees.

Answer 2

True

Question 3

Regarding the alternatives for measuring the pension liability, the profession adopted the accumulated benefit obligation using the present value of vested and non-vested benefits accrued to date, based on employees' future salary levels.

Answer 3

False

Question 4

Service cost is the expense caused by the increase in the accumulated benefit obligation because of employees' service during the current year.

Question 5

Employers are at risk with defined-benefit plans because they must contribute enough to meet the cost of benefits that the plan defines.

Question 6

Companies compute the vested benefit obligation using only vested benefits, at current salary levels.

Question 7

IFRS encourages, but does not require, companies to use actuaries in the measurement of the pension amounts.

Question 8

For defined benefit plans, IFRS recognizes a pension asset or liability as the funded status of the plan.

Question 9

In a defined contribution plan, the employer must make up any shortfall in the accumulated assets held by the defined contribution trust.

Question 10

The interest component of pension expense in the current period is computed by multiplying the settlement rate by the beginning balance of the projected benefit obligation.

Question 11

Qualified pension plans permit tax-free status of earnings from pension fund assets.

Question 12

A pension plan is contributory when the employer makes payments to a funding agency.

Question 13

An employer does not have to report a liability on its statement of financial position in a defined-benefit plan.

Question 14

The employees are the beneficiaries of a defined contribution trust, but the employer is the beneficiary of a defined benefit trust.

Question 15

Qualified pension plans permit deductibility of the employer's contributions to the pension fund.

Question 16

Companies should recognize the entire increase in defined benefit obligation due to a plan initiation or amendment as pension expense in the year of amendment.

Question 17

The unexpected gains and losses from changes in the defined benefit obligation are called asset gains and losses.

Question 18

The Pension Asset \ Liability account balance equals the difference between the defined benefit obligation and the fair value of pension plan assets.

Question 19

The difference between the expected return and the actual return is referred to as the unexpected gain or loss.

Question 20

Companies recognize the accumulated benefit obligation in their accounts and in their financial statements.

Question 21

If the Unrecognized Net Gain or Loss account is less than the corridor, the net gains and losses are subject to amortization.

Question 22

The defined benefit obligation is the measure of pension obligation that

A)is required to be used for reporting the service cost component of pension expense.
B)requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels.
C)requires the longest possible period for funding to maximize the tax deduction.
D)is not sanctioned under international financial reporting standards for reporting the service cost component of pension expense.

Question 23

In all pension plans, the accounting problems include all the following except

A)measuring the amount of pension obligation.
B)disclosing the status and effects of the plan in the financial statements.
C)allocating the cost of the plan to the proper periods.
D)determining the level of individual premiums.

Question 24

The interest on the defined benefit obligation component of pension expense

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

Question 25

The Unrecognized Net Gain or Loss account is amortized only if it exceeds 10 percent of the larger of the beginning balances of the defined benefit obligation or the market-related plan assets value.

Question 26

Companies report any actuarial gains or losses charged or credited to other comprehensive income in the statement of financial position.

Question 27

In a defined-contribution plan, a formula is used that

A)defines the benefits that the employee will receive at the time of retirement.
B)ensures that pension expense and the cash funding amount will be different.
C)requires an employer to contribute a certain sum each period based on the formula.
D)ensures that employers are at risk to make sure funds are available at retirement.

Question 28

Vested benefits

A)usually require a certain minimum number of years of service.
B)are those that the employee is entitled to receive even if fired.
C)are not contingent upon additional service under the plan.
D)are defined by all of these.

Question 29

Differing measures of the pension obligation can be based on

A)all years of service-both vested and nonvested-using current salary levels.
B)only the vested benefits using current salary levels.
C)both vested and nonvested service using future salaries.
D)all of these.

Question 30

The computation of pension expense includes all the following except

A)service cost component measured using current salary levels.
B)interest on defined benefit obligation.
C)expected return on plan assets.
D)All of these are included in the computation.

Question 31

The actual return on plan assets

A)is equal to the change in the fair value of the plan assets during the year.
B)includes interest, dividends, and changes in the fair value of the fund assets.
C)is equal to the expected rate of return times the fair value of the plan assets at the beginning of the period.
D)all of these.

Question 32

The relationship between the amount funded and the amount reported for pension expense is as follows:

A)pension expense must equal the amount funded.
B)pension expense will be less than the amount funded.
C)pension expense will be more than the amount funded.
D)pension expense may be greater than, equal to, or less than the amount funded.

Question 33

Acurtailment occurs when a company enters into a transaction that eliminates all further obligations for part or all of the benefits provided under a defined benefit plan.

Question 34

In determining the present value of the prospective benefits (often referred to as the defined benefit obligation), the following are considered by the actuary:

A)retirement and mortality rate.
B)interest rates.
C)benefit provisions of the plan.
D)all of these factors.

Question 35

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 past service cost.
B)pension asset\liability.
C)as other comprehensive income (G\L)
D)as accumulated other comprehensive income (PSC).

Question 36

In computing the service cost component of pension expense, the IASB concluded that

A)the accumulated benefit obligation provides a more realistic measure of the pension obligation on a going concern basis.
B)a company should employ an actuarial funding method to report pension expense that best reflects the cost of benefits to employees.
C)the defined benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense.
D)all of these.

Question 37

Companies must disclose a reconciliation of how the defined benefit obligation and the fair value of plan assets changed during the year either in their financial statements or in the notes.

Question 38

One component of pension expense is expected return on plan assets.Plan assets include

A)contributions made by the employer and contributions made by the employee when a contributory plan of some type is involved.
B)plan assets still under the control of the company.
C)only assets reported on the statement of financial position of the employer as pension asset\liability.
D)none of these.

Question 39

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

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

Question 40

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

Question 41

Barton, Inc.received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2011.

The service cost component of pension expense for 2011 is $360,000 and the amortization of past service cost due to an increase in benefits is $60,000.The discount rate is 10% and the expected rate of return is 9%.What is the amount of pension expense for 2011?

A)$360,000
B)$522,000
C)$531,000
D)$432,000

Question 42

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

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

Question 43

The unexpected gains or losses that result from changes in the defined benefit obligation are called

Question 44

Past service cost is amortized on a

A)straight-line basis over the expected future years of service.
B)years-of-service method or on a straight-line basis over the average remaining service life of active employees.
C)straight-line basis over 10 years.
D)straight-line basis over the average remaining service life of active employees or 10 years, whichever is longer.

Question 45

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

A)recorded currently as an adjustment to pension expense in the period incurred.
B)recorded currently and in the future by applying the corridor method which provides the amount to be amortized.
C)amortized over a 10-year period.
D)recorded only if a loss is determined.

Question 46

According to the IASB, recognition of a liability is required when the defined benefit obligation exceeds the fair value of plan assets.Conversely, when the fair value of plan assets exceeds the defined benefit obligation, the Board

A)requires recognition of an asset.
B)requires recognition of an asset if the excess fair value of plan assets exceeds the corridor amount.
C)recommends recognition of an asset but does not require such recognition.
D)does not permit recognition of an asset.

Question 47

A pension asset is reported when

A)the accumulated benefit obligation exceeds the fair value of pension plan assets.
B)the accumulated benefit obligation exceeds the fair value of pension plan assets, but a past service cost exists.
C)pension plan assets at fair value exceed the accumulated benefit obligation.
D)pension plan assets at fair value exceed the defined benefit obligation.

Question 48

When a company adopts a pension plan, past service costs should be charged to

A)accumulated other comprehensive income (PSC).
B)operations of prior periods.
C)other comprehensive income (PSC).
D)retained earnings.

Question 49

When a company amends a pension plan, for accounting purposes, past service costs should be

A)treated as a prior period adjustment because no future periods are benefited.
B)amortized in accordance with procedures used for income tax purposes.
C)recorded in other comprehensive income (PSC).
D)reported as an expense in the period the plan is amended.

Question 50

Presented below is pension information related to Woods, Inc.for the year 2011:

The amount of pension expense to be reported for 2011 is

A)$108,000.
B)$144,000.
C)$162,000.
D)$120,000.

Question 51

The fair value of pension plan assets is used to determine the corridor and to calculate the expected return on plan assets.
Expected Return
Corridor on Plan Assets

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

Question 52

Which of the following disclosures of pension plan information would not normally be required?

A)The major components of pension expense
B)The amount of past service cost changed or credited in previous years.
C)The funded status of the plan and the amounts recognized in the financial statements
D)The rates used in measuring the benefit amounts

Question 53

Which of the following statements is correct?

A)There is an account titled Pension Asset \ Liability.
B)There is an account titled Defined Benefit Obligation.
C)Unrecognized net gain or loss should be reported in the liability section of the balance sheet.
D)Other comprehensive income (PSC) should be included in net income.

Question 54

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

A)both the accumulated benefit obligation and the defined benefit obligation are usually greater than before.
B)both the accumulated benefit obligation and the defined benefit obligation are usually less than before.
C)the expense and the liability should be recognized at the time the benefits are paid.
D)the expense should be recognized immediately, but the liability may be deferred until a reasonable basis for its determination has been identified.

Question 55

A pension fund gain or loss that is caused by a plant closing should be

A)recognized when the plant closing occurs.
B)spread over the current year and future years.
C)charged or credited to the current pension expense.
D)recognized as a prior period adjustment.

Question 56

A pension liability is reported when

A)the defined benefit obligation exceeds the fair value of pension plan assets.
B)the accumulated benefit obligation is less than the fair value of pension plan assets.
C)the pension expense reported for the period is greater than the funding amount for the same period.
D)accumulated other comprehensive income exceeds the fair value of pension plan assets.

Question 57

Use the following information for questions.
The following information for Cooper Enterprises is given below:
There were no unexpected gains or losses at January 1, 2011.The average remaining service life of employees is 10 years.

What is the pension expense that Cooper Enterprises should report for 2011?

A)$76,050
B)$110,000
C)$60,000
D)$83,950

Question 58

Which of the following items should be included in pension expense calculated by an employer who sponsors a defined-benefit pension plan for its employees?

Question 59

Kraft, Inc.sponsors a defined-benefit pension plan.The following data relates to the operation of the plan for the year 2011.

The expected return on plan assets and the settlement rate were both 10%.The amount of pension expense reported for 2011 is

A)$200,000.
B)$260,000.
C)$280,000.
D)$440,000.

Question 60

Presented below is information related to Jensen Inc.pension plan for 2011.
What amount should be reported for pension expense in 2011?

A)$1,365,000
B)$1,335,000
C)$1,515,000
D)$1,155,000

Question 61

Carlton Co.provides the following information about its Pension plan for the year 2012.
Based on this information, what is the Pension expense for 2012?

A)£236,800
B)£100,000
C)£72,800
D)£106,800

Question 62

Use the following information for questions.
The following data are for the pension plan for the employees of Lockett Company.

Lockett's contribution was $1,260,000 in 2011 and benefits paid were $1,125,000.Lockett
estimates that the average remaining service life is 15 years.
The actual return on plan assets in 2011 was

A)$900,000.
B)$765,000.
C)$600,000.
D)$465,000.

Question 63

At January 1, 2012, Wembley Company had plan assets of €250,000 and a defined benefit obligation of the same amount.During 2012, service cost was €27,500, the discount rate was 10%, actual and expected return on plan assets were €25,000, contributions were €20,000, and benefits paid were €17,500.Based on this information what would be the defined benefit obligation for Wembley Company for 2012?

A)€277,500
B)€285,000
C)€27,500
D)€302,500

Question 64

Use the following information for questions.
The following information relates to the pension plan for the employees of Turner Co.:

Turner estimates that the average remaining service life is 16 years.Turner's contribution was $756,000 in 2011 and benefits paid were $564,000.
The actual return on plan assets in 2011 is

A)$408,000.
B)$456,000.
C)$588,000.
D)$648,000.

Question 65

Use the following information for questions.
The following information relates to the pension plan for the employees of Turner Co.:

Turner estimates that the average remaining service life is 16 years.Turner's contribution was $756,000 in 2011 and benefits paid were $564,000.
The corridor for 2011 is

A)$619,200.
B)$624,000.
C)$678,000.
D)$800,400.

Question 66

For 2012, Garvey Chambers plc had pension expense of £61 million and contributed £52 million to the pension fund.Which of the following is the journal entry that Garvey Chambers would make to record pension expense and funding?

Question 67

The following information is related to the pension plan of Long, Inc.for 2011.
Pension expense for 2011 is

A)$1,195,000.
B)$1,165,000.
C)$1,030,000.
D)$1,000,000.

Question 68

At the end of the current period, Oxford Ltd.has a defined benefit obligation of £195,000 and pension plan assets with a fair value of £110,000.The amount of the vested benefits for the plan is £105,000.What amount related to its pension plan will be reported on the company's statement of financial position?

A)£5,000
B)£90,000
C)£85,000
D)£20,000

Question 69

Use the following information for questions.
The following data are for the pension plan for the employees of Lockett Company.

Lockett's contribution was $1,260,000 in 2011 and benefits paid were $1,125,000.Lockett
estimates that the average remaining service life is 15 years.
The corridor for 2011 was $900,000.The amount of unrecognized net loss amortized in 2011 was

A)$100,000.
B)$96,000.
C)$42,000.
D)$36,000.

Question 70

Use the following information for questions.
The following information relates to the pension plan for the employees of Turner Co.:

Turner estimates that the average remaining service life is 16 years.Turner's contribution was $756,000 in 2011 and benefits paid were $564,000.
The interest cost for 2011 is

A)$537,840.
B)$607,200.
C)$657,360.
D)$880,440.

Question 71

Use the following information for questions.
On January 1, 2011, Newlin Co.has the following balances:

The fair value of plan assets at December 31, 2011 is

A)$2,430,000.
B)$2,250,000.
C)$2,232,000.
D)$2,214,000.

Question 72

Use the following information for questions.
The following information relates to the pension plan for the employees of Turner Co.:

Turner estimates that the average remaining service life is 16 years.Turner's contribution was $756,000 in 2011 and benefits paid were $564,000.
The unexpected gain or loss on plan assets in 2011 is

A)$39,360 loss.
B)$22,560 gain.
C)$19,200 gain.
D)$214,560 gain.

Question 73

Clarkson Co.provides the following information about its Pension plan for the year 2012.
Based on this information, what is the Pension expense for 2012?

A)165,900
B)913,900
C)72,900
D)103,900

Question 74

Hubbard, Inc.received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2011.
The service cost component of pension expense for 2011 is $840,000 and the amortization of past service cost due to an increase in benefits is $180,000.The rate is 10% and the expected rate of return is 8%.What is the amount of pension expense for 2011?

A)$1,716,000
B)$1,680,000
C)$1,608,000
D)$1,440,000

Question 75

Presented below is pension information for Green Company for the year 2011:

The amount of pension expense to be reported for 2011 is

A)$93,000.
B)$69,000.
C)$60,000.
D)$45,000.

Question 76

Use the following information for questions.
The following data are for the pension plan for the employees of Lockett Company.

Lockett's contribution was $1,260,000 in 2011 and benefits paid were $1,125,000.Lockett
estimates that the average remaining service life is 15 years.
Assume that the actual return on plan assets in 2011 was $800,000.The unexpected gain on plan assets in 2011 was

A)$191,000.
B)$170,000.
C)$149,000.
D)$107,000.

Question 77

Use the following information for questions.
On January 1, 2011, Newlin Co.has the following balances:

The balance of the defined benefit obligation at December 31, 2011 is

A)$2,685,000.
B)$2,385,000.
C)$2,355,000.
D)$2,337,000.

Question 78

Use the following information for questions.
The following information for Cooper Enterprises is given below:
There were no unexpected gains or losses at January 1, 2011.The average remaining service life of employees is 10 years.

The amortization of Unrecognized Net Loss for 2012 is:

A)$0
B)$6,395
C)$11,500
D)$8,395

Question 79

At January 1, 2012, Trevor Company had plan assets of €215,000 and a defined benefit obligation of the same amount.During 2012, service cost was €22,500, the discount rate was 10% actual and expected return on plan assets were €26,000, contributions were €20,000, and benefits paid were €19,500.Based on this information what would be the Defined Benefit obligation for Trevor Company for 2012?

A)€263,500
B)€239,500
C)€22,500
D)€259,000

Question 80

Use the following information for questions.
The following information for Cooper Enterprises is given below:
There were no unexpected gains or losses at January 1, 2011.The average remaining service life of employees is 10 years.

What is the amount that Cooper Enterprises should report as its pension liability on its statement of financial position as of December 31, 2011?

A)$100,000
B)$15,000
C)$105,000
D)$200,000