Question 1

Which statement is false?

Accepted Answer

A)  In the computation of pension expense, a negative return on plan assets can be added. 
B)  The amount of prior service cost is not included as an asset or a liability. 
C)  Interest cost is equal to the projected benefit obligation at the end of the period multiplied by the discount rate used by the company. 
D)  A lower-than-expected mortality rate creates a pension loss to a company. 
A)  In the computation of pension expense, a negative return on plan assets can be added. 
B)  The amount of prior service cost is not included as an asset or a liability. 
C)  Interest cost is equal to the projected benefit obligation at the end of the period multiplied by the discount rate used by the company. 
D)  A lower-than-expected mortality rate creates a pension loss to a company.

Question 2

Accounting for prior service cost prospectively would violate the matching concept because all the services performed by the employees were completed in previous periods.

Accepted Answer

A) True 
 B)False

Question 3

The attribution period ends at

Accepted Answer

A)  the expected retirement date 
B)  the actual retirement date 
C)  the full eligibility date 
D)  either a or b 
A)  the expected retirement date 
B)  the actual retirement date 
C)  the full eligibility date 
D)  either a or b

Question 4

In addition to providing pensions to their employees, many companies also offer postemployment benefits. These are benefits going to former employees after employment but before retirement.
Required:
Describe how the cost of these benefits is to be accounted for under current GAAP.

Accepted Answer

The cost of these benefits is accrued du

Question 5

Joan, Inc. started a pension plan on January 1, 2014. At that date, prior service cost of $1,100,000 was granted to employees. At December 31, 2014, the following information was available:

Required:
a.Compute the pension expense for 2014.
b.Prepare appropriate journal entries for 2014.

Accepted Answer

The answer of Joan, Inc. started a pension plan on...

Question 6

Exhibit 19-02 The Sophia Company adopted a defined benefit pension plan on January 1, 2014, and prior service credit was granted to employees. The present value of those benefits was calculated to be $1,245,300 at that date. The service cost is funded in full at the end of each year, plus an additional amount of $225,000 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:

- Refer to Exhibit 19-02. What is the pension expense for 2014?

Accepted Answer

A)  $105,000 
B)  $229,530 
C)  $315,000 
D)  $354,060 
A)  $105,000 
B)  $229,530 
C)  $315,000 
D)  $354,060

Question 7

Under contributory plans the employees bear the majority of the costs of the plan and contribute towards the plan with deductions from their salaries.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 19-01 Marley Co. has an underfunded prepaid/accrued pension cost of $2,000 (debit balance) at December 31, 2014. The following information pertains to 2015:  
-Refer to Exhibit 19-1. The December 31, 2015, adjusting entry should be

Accepted Answer

A)  Other Comprehensive Income $\quad $30,000 
Accrued/Prepaid Pension Cost $\quad $30,000 
B)  Accrued/Prepaid Pension Cost $\quad $30,000
 Other Comprehensive Income $\quad $30,000 
C)  Other Comprehensive Income $\quad $42,000 
Accrued/Prepaid Pension Cost $\quad $42,000 
D)  Accrued/Prepaid Pension Cost$\quad $ 40,000 
Other Comprehensive Income $\quad $40,000 
A)  Other Comprehensive Income $\quad $30,000 
Accrued/Prepaid Pension Cost $\quad $30,000 
B)  Accrued/Prepaid Pension Cost $\quad $30,000
 Other Comprehensive Income $\quad $30,000 
C)  Other Comprehensive Income $\quad $42,000 
Accrued/Prepaid Pension Cost $\quad $42,000 
D)  Accrued/Prepaid Pension Cost$\quad $ 40,000 
Other Comprehensive Income $\quad $40,000

Question 9

Mark, Inc. amended its defined benefit pension plan as of January 1, 2014. Mark received a report from its actuary stating that at the beginning of 2014 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 2016. Two were expected to retire at the end of 2018, two more at the end of 2020, and four at the end of 2022.
Required:
Using the years-of-future-service method, compute the amount of prior service cost to be amortized in the first year.

Accepted Answer

$24,000, determined

Question 10

Amortization of any net gain or loss is included in pension expense of a given year if at the

Accepted Answer

A)  end of the year, the cumulative net gain or loss exceeds 10% of the greater of the actual projected benefit obligation or the fair value of the plan assets 
B)  beginning of the year, the cumulative net gain or loss exceeds 10% of the greater of the actual accumulated benefit obligation or the fair value of the plan assets 
C)  end of the year, the cumulative gain or loss exceeds 10% of the greater of the actual accumulated benefit obligation or the fair value of the plan assets 
D)  beginning of the year, the cumulative gain or loss exceeds 10% of the greater of the actual projected benefit obligation or the fair value of the plan assets 
A)  end of the year, the cumulative net gain or loss exceeds 10% of the greater of the actual projected benefit obligation or the fair value of the plan assets 
B)  beginning of the year, the cumulative net gain or loss exceeds 10% of the greater of the actual accumulated benefit obligation or the fair value of the plan assets 
C)  end of the year, the cumulative gain or loss exceeds 10% of the greater of the actual accumulated benefit obligation or the fair value of the plan assets 
D)  beginning of the year, the cumulative gain or loss exceeds 10% of the greater of the actual projected benefit obligation or the fair value of the plan assets

Question 11

What three methods are available to provide guidance for companies to recognize gains or losses in pension expense?

Accepted Answer

1) immediate recognition in pe

Question 12

In the computation of pension expense, interest cost is the

Accepted Answer

A)  expected increase in the plan assets due to investing activities 
B)  increase in the projected benefit obligation due to the passage of time 
C)  actuarial present value of benefits 
D)  expected return on plan assets 
A)  expected increase in the plan assets due to investing activities 
B)  increase in the projected benefit obligation due to the passage of time 
C)  actuarial present value of benefits 
D)  expected return on plan assets

Question 13

Which of the following statements regarding postretirement benefits other than pensions is true?

Accepted Answer

A)  A liability for postretirement benefits other than pensions is not required to be reported on the balance sheet. 
B)  The interest component of the net postretirement benefit expense is based on the accumulated postretirement benefit obligation (APBO). 
C)  The interest component of the net postretirement benefit expense is based on the expected postretirement benefit obligation (EPBO). 
D)  An intangible asset for other postemployment benefits (OPE
B)  is required to be reported on a company's balance sheet. 
A)  A liability for postretirement benefits other than pensions is not required to be reported on the balance sheet. 
B)  The interest component of the net postretirement benefit expense is based on the accumulated postretirement benefit obligation (APBO). 
C)  The interest component of the net postretirement benefit expense is based on the expected postretirement benefit obligation (EPBO). 
D)  An intangible asset for other postemployment benefits (OPE
B)  is required to be reported on a company's balance sheet.

Question 14

GAAP requires that a company accrue the cost of OPRB's during the periods in which its employees earn the benefits.

Accepted Answer

A) True 
 B)False

Question 15

What are the advantages of qualified pension plans?

Accepted Answer

1) Employer contributions into the plan

Question 16

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

Accepted Answer

A)  vested benefits 
B)  accumulated benefits 
C)  periodic benefits 
D)  prior service benefits 
A)  vested benefits 
B)  accumulated benefits 
C)  periodic benefits 
D)  prior service benefits

Question 17

Attribution period starts on the

Accepted Answer

A)  hiring date 
B)  vesting date 
C)  termination date 
D)  retirement date 
A)  hiring date 
B)  vesting date 
C)  termination date 
D)  retirement date

Question 18

Vested benefits are

Accepted Answer

A)  estimated benefits 
B)  to be received as a lump-sum payment 
C)  lost when employment is terminated 
D)  right to receive even if the employment is terminated 
A)  estimated benefits 
B)  to be received as a lump-sum payment 
C)  lost when employment is terminated 
D)  right to receive even if the employment is terminated

Question 19

Which of the following pension-related definitions is not correct?

Accepted Answer

A)  Vested benefits are payments that are not contingent on the employee's continuing in the service of the employer. 
B)  Present value is the current worth of an amount or amounts payable or receivable in the future. 
C)  Actuarial assumptions are those made by actuaries concerning future events affecting pension costs. 
D)  Service cost is the amount paid annually to a funding agency under an unfunded pension plan. 
A)  Vested benefits are payments that are not contingent on the employee's continuing in the service of the employer. 
B)  Present value is the current worth of an amount or amounts payable or receivable in the future. 
C)  Actuarial assumptions are those made by actuaries concerning future events affecting pension costs. 
D)  Service cost is the amount paid annually to a funding agency under an unfunded pension plan.

Question 20

The accumulated benefit obligation is equal to the

Accepted Answer

A)  actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using current salary levels in the pension plan formula 
B)  actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using anticipated future salary levels in the pension plan formula 
C)  difference between the annual pension expense and the amount actually funded during the year 
D)  actuarial present value of benefits attributed by the pension plan formula to services rendered by employees during the current year 
A)  actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using current salary levels in the pension plan formula 
B)  actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using anticipated future salary levels in the pension plan formula 
C)  difference between the annual pension expense and the amount actually funded during the year 
D)  actuarial present value of benefits attributed by the pension plan formula to services rendered by employees during the current year

Exam 19: Accounting for Postretirement Benefits

Which statement is false?

Accounting for prior service cost prospectively would violate the matching concept because all the services performed by the employees were completed in previous periods.

The attribution period ends at

In addition to providing pensions to their employees, many companies also offer postemployment benefits. These are benefits going to former employees after employment but before retirement. Required: Describe how the cost of these benefits is to be accounted for under current GAAP.

Joan, Inc. started a pension plan on January 1, 2014. At that date, prior service cost of $1,100,000 was granted to employees. At December 31, 2014, the following information was available: Required: a.Compute the pension expense for 2014. b.Prepare appropriate journal entries for 2014.

Under contributory plans the employees bear the majority of the costs of the plan and contribute towards the plan with deductions from their salaries.

Exhibit 19-01 Marley Co. has an underfunded prepaid/accrued pension cost of $2,000 (debit balance) at December 31, 2014. The following information pertains to 2015: -Refer to Exhibit 19-1. The December 31, 2015, adjusting entry should be

Amortization of any net gain or loss is included in pension expense of a given year if at the

What three methods are available to provide guidance for companies to recognize gains or losses in pension expense?

In the computation of pension expense, interest cost is the

Which of the following statements regarding postretirement benefits other than pensions is true?

GAAP requires that a company accrue the cost of OPRB's during the periods in which its employees earn the benefits.

What are the advantages of qualified pension plans?

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

Attribution period starts on the

Vested benefits are

Which of the following pension-related definitions is not correct?

The accumulated benefit obligation is equal to the

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