Exam 19: Accounting for Postretirement Benefits

Which of the following items attributable to a defined benefit pension plan would be recognized on a company's balance sheet?

What five alternatives were examined by regulators to determine which best met the recognition-measurement criteria of a liability?

During 2013, the Electric Company experienced a difference between its expected and actual projected benefit obligation. At the beginning of 2014, Electric's actuary notified them of the following accumulated information related to their plan: On December 31, 2014, Electric is in the process of calculating the net gain or loss to include in its pension expense for 2014. The average remaining service life of its employees is 10 years and there are no differences between the company's expected and annual rate of return on plan assets in 2014. Required: Compute the amount of the net gain or loss to include in the pension expense for 2014. Note whether it is an addition or subtraction to the pension expense.

A company must fund its pension plan each year at an amount that at least equals service cost for the year plus the amount needed to amortize an underfunding over a

The defined benefit plan is a type of plan in which the employer's contribution into the pension fund is based on a formula.

Karen Company began a defined benefit pension plan on January 1, 2014. No prior service credit was granted to employees. Service costs amounted to $34,000 in 2014 and $37,000 in 2015. All contributions to the fund were made at the end of the year. A 10% discount rate was used. The expected (and actual) rate of return of plan assets was 12%. Required: Prepare journal entries for December 31, 2014 and 2015, assuming: a.Funding equaled expense. b.$31,000 was funded each year. c.$38,000 was funded each year.

Disclosures for vested benefits

On January 1, 2014, Jackson Hole Company decided to provide a healthcare plan for retired employees. In order for benefits to be determined for each employee, the company gives credit to the date of hire for each employee. This is a retroactive benefit. The following information regarding the plan is as follows: Required: 1) Compute the OPRB expense for 2014 using the average remaining service life to amortize the prior service cost. 2) Prepare all the required journal entries for 2014 if the plan is not funded. 3) Compute the accumulated postretirement benefit obligation.

Which of the following is NOT one of the pension expense components that a company recognizes?

A company's pension expense includes all of the following items except

A pension plan provides for future retirement income based on the employee's earnings and length of service with the company. This type of pension plan is termed a

Martha Co. has a defined benefit pension plan for its employees. The plan was amended at the beginning of 2014 which increased benefits based on services rendered by certain employees in prior periods. The actuary has reported that unrecognized prior service cost resulting from the amendment is $385,000. Five employees expect to receive the increased benefits. Shown below is a schedule of the employees and their expected years of future service: Required: Using the straight-line method: a.Compute the average remaining service life. b.Determine the amount of unrecognized prior service cost to be included in the 2014 pension expense calculation.

The Maggie Company has a defined benefit pension plan for its employees. The following information pertains to the pension plan as of December 31, 2014: The amount of the December 31, 2014, projected benefit obligation is

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.

Which of the following is not a component of pension expense to be reported on a company's income statement?

The following information is related to a company's pension plan: Required: a.Prepare the adjusting journal entry to update the pension liability. b.Assume that instead of Accrued/Prepaid Pension Cost having a credit balance of $800, it had a $600 debit balance. Prepare the adjusting journal entry to record the pension liability.

The board of directors of the Vermont Company is going to adopt a defined benefit pension plan for the company's employees. The board is considering granting pension credit for up to ten (10) years of service rendered prior to the date that the plan is adopted. The board desires to grant the retroactive credit in order to provide equity to employees for their previous years of service. The board has hired an actuary to determine the cost of granting the retroactive credit. The actuary has calculated the cost of the retroactive benefits to be approximately one million dollars. The board has asked the company's controller to explain how the cost of the prior service credit would be accounted for in the financial statements. Required: a.Describe the GAAP that would be required by Vermont Company if prior service credit is granted to its employees. b.Many people have argued that the method adopted by the FASB to account for prior service costs has several conceptual flaws. Briefly discuss the flaws of the approach adopted by the FASB for prior service costs. c.The textbook discusses three other approaches that might have been used to account for prior service costs. Describe these three alternative approaches.

In 2014, the Electrician Company decided to amend its defined benefit pension plan. The amendment gave 7 employees the right to receive future benefits based upon their prior service. Electrician's actuary determined that the prior service cost for this amendment amounts to $550,000. Employee A will retire in 1 year, employee's B & C expect to retire in 2 years, employee D in three years, employee E in 4 years, and employee's F & G in five years. Required: Using the years-of-future service method, prepare the schedules to determine: 1) the amortization fraction for each year 2) the amortization of the prior service cost

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

Robin Co. has a defined benefit pension plan that has experienced differences between its expected and actual projected benefit obligation. Data on the plan as of January 1, 2014, follow: There was no difference between the company's expected and actual return on plan assets during 2014. The average remaining service life of the company's employees is 12 years. Required: Determine the amount of the net gain or loss to be included in pension expense for 2014 and indicate whether it is an increase or decrease in the pension expense calculation.