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

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

Exam 20: Accounting for Postemployment Benefits

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: Expected Years of Employee Future Service 3 5 5 6 6 8 9 What amount of prior service cost should be included in pension expense for 2010?

(Multiple Choice)

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Question 41

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: Future amount of 1 1.8280 Future amount of ordinary annuity of 1 9.2004 Present value of 1 0.5470 Present value of ordinary annuity of 1 5.0330 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.

(Short Answer)

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Question 42

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

(Multiple Choice)

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Question 43

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

(Multiple Choice)

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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

(Multiple Choice)

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Question 45

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

(Multiple Choice)

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Question 46

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

(Multiple Choice)

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Question 47

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.

(Essay)

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Question 48

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

(Multiple Choice)

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Question 49

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?

(Multiple Choice)

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Question 50

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

Amount normally recorded at the end of a period and often at the time of funding, although often not equal to the amount of funding.

actuary

Uses compound interest techniques with projections of future events to estimate components of pension costs.

expected return on plan assets

Specifically states either postretirement employee benefits or the method of determining such benefits by formula.

defined benefit plan

Correct Answer:

Verified

Amount normally recorded at the end of a period and often at the time of funding, although often not equal to the amount of funding.

Uses compound interest techniques with projections of future events to estimate components of pension costs.

Specifically states either postretirement employee benefits or the method of determining such benefits by formula.

Is the primary component of pension cost.

Generally requires service costs to be funded in the current year.

Places the entire pension cost on the employer.

A negative component of pension cost.

Assigns pension costs to the years of service, using the plan formula and the actual history of service and pay.

Is the amount actuarially assigned to years before the inception of the plan.

(Matching)

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Question 51

According to GAAP, the net periodic pension cost or, for simplicity, pension expense for a defined benefit pension plan consists of five components. Required: List and briefly describe each of the five components of net periodic pension cost that a company must recognize.

(Essay)

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Question 52

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

(Multiple Choice)

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Question 53

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

(Multiple Choice)

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Question 54

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

(Essay)

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Question 55

The projected benefit obligation is equal to the

(Multiple Choice)

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Question 56

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

(Multiple Choice)

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Question 57

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: 2010 2011 Service cost (annual) \ 95,000 \ 105,000 Unrecogrized prior service cost amortization 135,180 135,180 Interest cost 10\% 10\% Expected (and actual) return on plan assets 10\% 10\% - Refer to Exhibit 20-3.What is the pension expense for 2010?

(Multiple Choice)

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Question 58

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.

(Essay)

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Question 59

Which of the following items attributable to a defined benefit pension plan would be recognized on a company's balance sheet? ProjectedBenefit Pension Plan Prepaid Pension: Obligation Assets Costs I. Yes Yes Yes II. Yes Yes No III. Yes No No IV. No No Yes

(Multiple Choice)

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Question 60

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

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

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

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

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

According to GAAP, the net periodic pension cost or, for simplicity, pension expense for a defined benefit pension plan consists of five components. Required: List and briefly describe each of the five components of net periodic pension cost that a company must recognize.

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

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

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

The projected benefit obligation is equal to the

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

Which of the following items attributable to a defined benefit pension plan would be recognized on a company's balance sheet? ProjectedBenefit Pension Plan Prepaid Pension: Obligation Assets Costs I. Yes Yes Yes II. Yes Yes No III. Yes No No IV. No No Yes

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Contributed Capital

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

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