Chapter 17: Pension Plans and Other Post Retirement Benefits

a c

Which of the following factors may contribute to the recent popularity of defined contribution pension plans and decreasing popularity of defined benefit plans? (Select all that apply.) Multiple select question. a. Employers' increasing unwillingness to bear the risk of defined benefit plans. b. The desire to build long-term employee loyalty. c. The cost of administering defined benefit plans.

a c d

Which of the following factors may motivate employers to sponsor a pension plan? (Select all that apply.) Multiple select question. a. To fulfill a moral obligation. b. To meet legal requirements that companies sponsor pension plans. c. To enhance employees' loyalty to the company and reduce employee turnover. d. To enhance the company's competitiveness in the labor market.

c

Which of the following ignores possible pay increases for employees? Multiple choice question. a. Both ABO and PBO b. Projected benefit obligation c. Accumulated benefit obligation

a

Which of the following is a common title for a pension tied to company performance? Multiple choice question. a. Incentive savings plans b. Thrift plans c. Vested benefit plans

a

Which of the following is a similarity shared by defined benefit and defined contribution pension plans? Multiple choice question. a. They provide income to employees during their retirement years. b. The employees bear the risk of achieving the retirement objective. c. The employers bear the risk of achieving the retirement objective. d. The plans are easy to administer.

a

Which of the following is true regarding qualified pension plans? Multiple choice question. a. They provide tax advantages for the employer and employee. b. They provide tax advantages for the employer only. c. They provide tax advantages for the employee only.

c

Which of the following items is designed to provide income to individuals during retirement? Multiple choice question. Postretirement benefits other a. than pensions b. Net income c. Pension plans

b c d

Which of the following likely would cause gains or losses arising from changes in the PBO? (Select all that apply.) Multiple select question. a. changes in the expected return on plan assets b. changes in employee turnover rates c. changes in employees' life expectancy d. change in the assumed discount rate

b

Which of the following may be an important cause of underfunded pension plans? Multiple choice question. a. a discount rate estimate that is too low b. low or negative actual returns on plan assets c. an expected return on plan assets that is too low

c d

Which of the following parties contribute to a "contributory" pension plan? (Select all that apply.) Multiple select question. a. the state government b. the federal government c. the sponsoring company d. the employees

a c

Which of the following represent a potential source of gains and losses associated with defined benefit pension plans? (Select all that apply.) Multiple select question. a. changes in the assumptions made in calculating the benefit obligation b. changes in the pay structure relating to employees covered by the pension c. differences between the actual and expected return on plan assets

b c

Which of the following represent a potential source of gains and losses associated with defined benefit pension plans? (Select all that apply.) Multiple select question. a. changes in the pay structure relating to employees covered by the pension b. differences between the actual and expected return on plan assets c. changes in the assumptions made in calculating the benefit obligation

b c

Which of the following represent common reasons for the curtailment or settlement of defined benefit pension plans? (Select all that apply.) Multiple select question. a. the inherent risk of the plans for employees b. the cost and burden of paperwork and reporting requirement related to the plans c. the inherent risk of the plans for employers d. the general trend to not provide retirement plans to employees

a

Which of the following shows the correct calculation of the ending balance of pension plan assets? Multiple choice question. a. beginning balance, plus actual return, plus cash contributions, minus benefits paid b. beginning balance, plus expected return, plus cash contributions, minus benefits paid c. beginning balance, minus estimated return, plus cash contributions, plus benefits paid d. beginning balance, minus actual return, plus cash contributions, plus benefits paid

a b d

Which of the following will increase the PBO? (Select all that apply.) Multiple select question. a. service cost b. interest cost c. actuarial gain on PBO d. Loss on PBO

a

Which pension benefit obligation is the most representationally faithful? Multiple choice question. a. The projected benefit obligation b. The vested benefit obligation c. The accumulated benefit obligation

b

Which return is used to calculate pension expense? Multiple choice question. a. The average return b. The expected return c. The actual return

b

Which type of pension fund guarantees a set amount will be available at retirement? Multiple choice question. a. Defined contribution pension plan b. Defined benefit pension plan

b

Which type of pension plan has less paperwork and is less costly to maintain? Multiple choice question. a. Defined benefit plan b. Defined contribution plan

a

Which type of pension plan requires considerably more complex accounting treatment? Multiple choice question. a. Defined benefit pension plans b. Defined contribution pension plans

c

Who bears the risk in a defined contribution pension plan? Multiple choice question. a. Both the employee and employer b. The employer c. The employee

a b

Widen Company's financial statement notes relating to its pension plan disclose prior service cost of $45,000 and a net gain of $54,000. How would these amounts be reflected on the balance sheet of Widen Company? Multiple select question. a. as prior service cost—AOCI of $45,000 b. as a net gain—AOCI of $54,000 c. as a net pension item—AOCI of $9,000 d. as a net asset of $9,000

Pension

_____________ plans often enhance productivity and reduce employee turnover in companies.

a

401(k) profit-sharing plans and incentive savings plans Multiple choice question. a. link the amount of contributions to company performance. b. are based solely on a percentage of salary. c. base the amount of contributions on length of employment. d. are solely employee contribution plans.

Contribution

A Defined _______________ pension plan has less risk to the employer

a

A company may hire an actuary to help it Multiple choice question. a. estimate the company's pension obligation. b. reduce the risk associated with a pension plan. c. administer the pension fund assets.

Contribution

A defined ____________ pension plan guarantees a set amount will be put into the pension fund.

c

A loss on PBO will _____ the PBO and prior service cost will _____ the PBO. Multiple choice question. a. decrease; increase b. decrease; decrease c. increase; increase d. increase; decrease

Trustee

A pension fund ___________ accepts employer contributions, invests those contributions, and pays benefits to retired employees.

Trustee

A pension fund ____________ can be an individual, a bank, or a trust company.

c d e

A pension spreadsheet typically shows the relationship between which of the following elements of a pension plan (select all that apply): Multiple select question. a. unrealized gains and losses on AFS securities b. deferred gains and losses on derivative instruments c. service cost d. expected return on plan assets e. payments to retirees

a

A pension-related loss will occur if the PBO is ______ than expected or if the return on plan assets is ______ than expected. Multiple choice question. a. higher; lower b. higher; higher c. lower; lower d. lower; higher

c

A relatively low expected return on plan assets means the employer should Multiple choice question. a. make no change. b. contribute less. c. contribute more.

Actuary

A(n) _________________________ is a professional trained in a particular branch of statistics and mathematics used to assess the various uncertainties related to a defined benefit pension plan. (Enter only one word.)

a

Administering terminated pension plans is one purpose of Multiple choice question. a. the PBGC. b. the ERISA. c. the employer. d. the FDIC.

increases

Amortization of pension-related losses _____ pension expense. Multiple choice question. decreases does not affect increases

b

At the beginning of the year, Klein Company's pension plan showed pension plan assets of $4 million and a PBO of $4.5 million; unamortized prior service cost of $500,000; and no unamortized gains or losses. During the year, service cost was $310,000; $400,000 was paid to retirees; and the company contributed $340,000 to the plan. The expected return on plan assets was 8% and the discount rate estimate was 6%. The plan assets earned an actual return of 5%. The average remaining service period is 10 years. At the end of the year, the balance of the pension plan assets will be Multiple choice question. a. $5,065,000. b. $4,140,000. c. $4,800,000.

b

At the beginning of the year, Klein Company's pension plan showed pension plan assets of $4 million and a PBO of $4.5 million; unamortized prior service cost of $500,000; and no unamortized gains or losses. During the year, service cost was $310,000; $400,000 was paid to retirees; and the company contributed $340,000 to the plan. The expected return on plan assets was 8% and the discount rate estimate was 6%. The plan assets earned an actual return of 5%. The average remaining service period is 10 years. At the end of the year, the company's PBO relating this pension plan will be Multiple choice question. a. $5,610,000. b. $4,680,000. c. $4,870,000.

b

At the end of the current fiscal period, Werner Corp. retroactively amends its pension plan. Estimated prior service cost of the amendment is $125,000. The average remaining service period of the company's employees is 10 years. Assuming that Werner properly applies IFRS, which of the following statements is correct? Multiple choice question. a. Werner must amortize $12,500 annually starting next year. b. Werner must expense $125,000 during the current year. c. Werner must amortize a portion of the past service cost if it exceeds the "corridor."

b

Austin Company has a net loss pension amortization amount of $500,000 in the current year. This amount will _____ pension expense. Multiple choice question. a. not change b. increase c. decrease

decrease

Boone Company has a net gain pension amortization amount of $800,000 in the current year. This amount will _____ pension expense. Multiple choice question. increase decrease not change

b

Buddy Company started a defined benefit pension plan during the current year. The plan has a 5-year vesting period. The average age of the company's employees is 26 years; their expected retirement age is 60 years. The company should begin recognizing pension expense Multiple choice question. a. when the employees start retiring. b. during the current year. c. 5 years from now.

b

Byrd Company promised its employees a fixed percentage of their preretirement pay after retirement. Byrd sponsors a Multiple choice question. a. defined contribution pension plan. b. defined benefit pension plan.

PBO

Calculating the effect of a retroactive plan amendment involving a change in the pension formula requires comparing the ________ with and without the amendment

c

Choose the best answer regarding the usefulness of a pension spreadsheet. Multiple choice question. a. A pension spreadsheet must be presented in the financial statement notes. b. A pension spreadsheet helps the company predict future pension obligations. c. A pension spreadsheet shows how pension plan elements interrelate.

b

Companies with sizeable unrecognized pension costs will exhibit a relatively high _____ earnings component. Multiple choice question. a. permanent b. temporary c. temporary and permanent

a f

Cook Company revises its pension formula causing an increase in prior service cost. The original amount was $50 million and the new amount is $60 million. In recording this revision, Cook will (Select all that apply.) Multiple select question. a. credit PBO $10 million. b. credit Prior service cost-OCI $10 million. c. debit PBO $10 million. d. credit PBO $60 million. e. debit Prior service cost $60 million. f. debit Prior service cost-OCI $10 million.

a f

Cook Company revises its pension formula related to prior service cost and the amendment reduces the PBO. In recording this revision, Cook will include (Select all that apply.) Multiple select question. a. credit to Prior service cost-OCI. b. debit to plan assets. c. credit to PBO. d. debit to Prior service cost-OCI. e. credit to plan assets f. debit to PBO

Loss and gain

Decreases and increases in estimates of the PBO because of estimate revisions are called ___________ and ____________

Contribution

Defined _____________ pension plans use straightforward accounting that requires little explanation.

Benefit

Defined __________________ pension plans promise fixed retirement benefits defined by a designated formula to employees after retirement.

c

Deviations from actuary estimates are referred to as Multiple choice question. a. pension revenues and expenses. b. correction of errors when accounted for. c. gains and losses on pension asset or liability

b d

ERISA established the following vesting periods: (Select all that apply.) Multiple select question. a. full vesting within 7 years. b. full vesting within 5 years. c. vesting in stages within 10 years. d. vesting in stages within 7 years.

d

For a pension plan to be qualified for special tax treatment, Multiple choice question. a. it must cover all highly compensated employees. b. it extends favorable cover to highly compensated employees. c. it must not cover employees who are not highly compensated. d. it must not discriminate in favor of highly compensated employees.

c

From an income statement perspective, pension expense represents Multiple choice question. a. an administrative expense. b. a product cost. c. employee compensation.

a

Gerhard Company sponsors a defined benefit pension plan. At the end of the current fiscal year, the related pension plan assets have a fair value of $2 million, the ABO is $1.5 million, and the PBO is $2.2 million. Gerhard's pension plan is Multiple choice question. a. underfunded by $200,000 b. underfunded by $700,000 c. overfunded by $700,000 d. overfunded by $200,000

b

Grady Company estimates that its pension plan will earn a long-term expected rate of return of 8%. Suppose that due to a stock market boom, the company revises its estimate to 9%. Grady should probably Multiple choice question. a. increase its annual contributions to the plan. b. decrease its annual contributions to the plan. c. not change its annual contributions to the plan.

a

Green Company sponsors a defined benefit pension plan. The pension formula is calculated based on the following formula: 1.5% x number of service years x final salary. The assumed discount rate is 5%. If an employee is expected to retire in 10 years with a final annual salary of $200,000, has earned 20 years of service, and is expected to receive an annual pension for 20 years, the current PBO rounded to the full dollar will be Multiple choice question. a. $459,041. b. $747,733. c. $281,813 d. $60,000. $1,200,000.

e

Helga Company sponsors a defined benefit pension plan. The beginning balance of plan assets is $1 million; the beginning balance of the PBO is $1.1 million; the expected rate of return is 9%, the discount rate is 7%, and the salary trend rate is 4%. The interest cost is equal to Multiple choice question. a. $90,000. b. $99,000. c. $70,000. d. $44,000. e. $77,000.

a b c e f

Identify the components of pension expense in a defined benefit plan. (Select all that apply.) Multiple select question. a. amortization of prior service cost b. amortization of gains or losses c. service cost during the current period d. contributions made to pension plan e. expected return on plan assets f. interest cost accrued on pension liability g. pension benefits paid to employees

a c d e

Identify the information that is typically directly available from a pension spreadsheet. (Select all that apply.) Multiple select question. a. pension expense b. future and current funding requirements c. net pension asset or liability d. PBO balances e. plan assets balances f. accumulated and vested obligations

c

Identify the pension benefit obligation that typically provides the most relevant measure of the employer's pension obligation. Multiple choice question. a. the vested benefit obligation b. the accumulated benefit obligation c. the projected benefit obligation

Contribution

In a defined _______________ pension plan, the employer records pension expense equal to the amount of the annual contribution.

c

In a defined benefit plan, the ______ bear(s) the risk of achieving the retirement objective. In a defined contribution plan, the ______ bear(s) the risk of achieving the retirement objective. Multiple choice question. a. employees; employees b. employer; employer c. employer; employees d. employees; employer

a

In an employer pension plan, some or all of the contributions to the retirement fund are often provided by the Multiple choice question. a. employer. b. employee. c. government.

c

In which type of pension plan are the employee's retirement benefits completely dependent upon how well investments perform? Multiple choice question. a. Defined benefit plan b. Both defined benefit and defined contribution plans c. Defined contribution plan

b

In which type of pension plan does the employee bear the risk of uncertain investment returns? Multiple choice question. a. Both types of plan b. Defined contribution plan c. Defined benefit plan

a

Interest cost is the discount rate times the PBO balance _____ of the year. Multiple choice question. a. at the beginning b. at the end c. average

b

Life expectancies and age at retirement are uncertainties related to funding which type of pension plan? Multiple choice question. a. Defined contribution plan b. Defined benefit plan c. Both defined benefit and contribution plans

b

Muller Company's actuary reports that the employees' life expectancy has risen an average of 0.57 years. As a result of this revised estimate Multiple choice question. a. a loss associated with the plan assets will occur. b. a loss associated with a higher PBO will occur. c. a gain associated with the plan assets will occur. d. a gain associated with a lower PBO will occur.

c

Murphy Company incurs a loss from changing a pension related assumption. This loss is Multiple choice question. a. immediately included in pension expense. b. immediately included in net income. c. reported as other comprehensive income.

d f

Natch Company originally estimated the return on plan assets to be $5 million. The actual return on plan assets was $4 million. In recording this Natch will (Select all that apply.) Multiple select question. a. debit Loss-OCI for $4 million. b. credit Gain-OCI for $1 million. c. credit Gain-OCI for $4 million. d. debit Loss-OCI for $1 million. e. debit plan assets for $1 million. f. credit plan assets for $1 million. g. debit plan assets for $4 million.

a c

Natch Company revises its estimate of future salary levels from $50 million to $60 million. In recording this revision, Natch will (Select all that apply.) Multiple select question. a. credit PBO for $10 million b. credit Gain-OCI for $10 million c. debit Loss-OCI for $10 million d. debit plan assets for $10 million e. credit PBO for $60 million f. debit plan assets for $60 million

Asset or Liability

Pension plan assets are netted with the PBO and a net pension _________ or ___________ is reported on the employer's balance sheet.

Qualified

Pension plans that are established according to tight guidance and provide important tax advantages are called ______________ plans.

a

Prior service cost is recognized as pension expense Multiple choice question. a. over the future service period of the employees receiving the benefit. b. on a straight-line basis over the next 10 years. c. immediately when the retroactive amendment is made.

Matching

Recognizing pension expense during an employee's service years rather than during retirement represents an application of ___________ the costs with benefits provided

a f

Select the two factors that must be compared to calculate prior service cost. Multiple select question. a. PBO balance after the plan amendment b. plan assets balance after the plan amendment c. pension expense prior to the plan amendment d. pension expense after the plan amendment e. plan assets balance before the plan amendment f. PBO balance prior to the plan amendment

a

Serafin Company's balance sheet shows a pension asset of $550,000. Its notes indicate that, during the current year, the company contributed $470,000 to the pension fund and retirees received $400,000 in pension payments. From this information we can deduce that the pension plan is Multiple choice question. a. overfunded by $550,000. b. overfunded by $480,000. c. overfunded by $70,000.

a

Service cost, interest cost, the return on plan assets, prior service cost amortization, and net gain or loss amortization make up Multiple choice question. a. pension expense. b. the projected benefit obligation. c. the plan assets.

d

Setting vesting standards is a key purpose of Multiple choice question. a. the PBGC b. the employer. c. the FDIC d. the ERISA

c

Sheller Company estimates that its pension plan asset will earn a return of 10%. The beginning balance of plan assets was $500,000 and the ending balance was $560,000. During the year, the plan earned a return of 8%. This will result in a Multiple choice question. a. gain of $10,000. b. loss of $11,200. c. loss of $10,000. d. gain of $11,200. e. no gain or loss.

b

Smart Company revises an estimate resulting in an increase in the PBO. This revision results in _____ on PBO. Multiple choice question. a. a gain b. a loss c. no effect

a

Smith Company estimates that its pension plan will earn a return of 10%. The actual return is 7.5% This will result in Multiple choice question. a. a loss on plan assets. b. a gain on plan assets. c. an immediate recognition of pension expense.

d

Smith Company sponsors a defined benefit pension plan. The beginning balance of plan assets is $5 million; the beginning balance of the PBO is $5.5 million; the expected rate of return is 8%, the discount rate is 6%, and the salary trend rate is 4%. The interest cost is equal to Multiple choice question. a. $440,000. b. $400,000. c. $300,000. d. $330,000.

b

Smith Corp. sponsors a 401(k) plan for all its full-time employees. The company contributes 5% of each employee's salary to the plan. Total payroll for the year was $1 million. When recognizing the cost associated with this pension plan, Smith should debit Multiple choice question. a. salaries expense. b. pension expense. c. wages expense. d. pension liability.

b

The PBO balance at the beginning of the year is $100,000; service cost during the year is $10,000; interest cost is $9,000; and a loss of $4,000 was incurred due to a change in assumptions. Amortization of prior service cost was $5,000. The ending balance of the PBO will be Multiple choice question. a. $119,000. b. $123,000. c. $128,000.

a

The ______ return on plan assets is an assumption made by management, and the ______ return on plan assets is the income on investments reported by the trustee. Multiple choice question. a. expected; actual b. investment; estimated c. actual; expected d. interest; amended

Accumulated

The ___________ benefit obligation is an estimate of the discounted present value of the retirement benefits earned so far by employees based on existing salary levels.

Projected

The ______________ benefit obligation is the most relevant as it includes estimated pay increases.

vested

The _______________ benefit obligation is the portion of benefits employees are entitled to regardless of continued employment.

Accumulated Benefit Obligation

The actuary's estimate of the present value of the total retirement benefit earned so far by employees based on existing compensation levels.

Projected Benefit Obligation

The actuary's estimate of the present value of the total retirement benefit earned so far by employees incorporating estimated future salary levels.

Vested Benefit Obligation

The actuary's estimate of the present value of the total retirement benefits earned by employees if they left the company today.

a

The cumulative gains and losses due to pension estimate revisions are Multiple choice question. a. reported in the balance sheet. b. reported in the statement of comprehensive income. c. reported in the income statement.

a

The deferred recognition of pension-related gains and losses tends to Multiple choice question. a. result in smoother income. b. result in misstated financial statements. c. reduce the overall pension expense.

b

The employer's obligation to pay retirement benefits in the future is a key element in Multiple choice question. a. both types of plan. b. a defined benefit pension plan. c. a defined contribution pension plan.

b

The first numeric column in a pension spreadsheet typically shows the Multiple choice question. a. reconciliation of the beginning and ending balances of plan assets. b. actuary's reconciliation of the beginning and ending balances of the PBO. c. amount of pension expense.

b

The following information pertains to Blum Company's defined benefit pension plan: PBO beginning balance: $100,000; current year service cost: $10,000, interest cost: $8,000; actuarial loss: $3,000, employer contributions to plan: $12,000, payments to retirees: $6,000. The ending balance of the company's PBO is Multiple choice question. a. $109,000. b. $115,000. c. $127,000. d. $121,000.

b

The following information pertains to Carter Company's defined benefit pension plan: PBO beginning balance: $100,000; current year service cost: $8,000, interest cost: $10,000; actuarial gains: $2,000, employer contributions to plan: $10,000, payments to retirees: $5,000. The ending balance of the company's PBO is Multiple choice question. a. $116,000. b. $111,000. c. $115,000. d. $121,000.

e

The following information pertains to Pernell Company's pension plan. Beginning PBO: $500,000; current service cost $50,000; discount rate: 6%; contributions by Pernell: $40,000; benefits paid to employees: $25,000; loss on PBO: $5,000. The ending balance of the PBO will be Multiple choice question. a. $530,000 b. $440,000 c. $580,000 d. $520,000 e. $560,000

c d

The following information refers to Dora Company's defined benefit pension plan for the current year. Service cost: $3,000; interest cost: $2,000; amortization of prior service cost: $700; amortization of net loss: $300; expected return on plan assets: $3,000. Recognition of pension expense will include (Select all that apply.) Multiple select question. a. debit to PBO of $5,000. b. credit to plan assets for $3,000. c. credit to PBO of $5,000. d. debit to plan assets for $3,000.

c d e

The following information refers to O'Shea Company's defined benefit pension plan for the current year. Service cost: $5,000; interest cost: $2,000; amortization of prior service cost: $1,000; amortization of net loss: $500; expected return on plan assets: $3,000. O'Shea Company's journal entry to record pension-related costs would include (Select all that apply.) Multiple select question. a. debit to pension expense for $7,000. b. debit to prior service cost—OCI for $1,000. c. credit to amortization of net loss—OCI for $500. d. debit to pension expense for $5,500. e. credit to amortization of prior service cost—OCI for $1,000.

c

The following information relates to Bay Company's pension plan. Beginning balance in plan assets: $600,000; cash contributions to pension plan: $70,000; payments to retirees: $50,000; actual return on plan assets: $56,000; expected rate of return on plan assets: 8%; discount rate: 6%. The plan asset ending balance will be Multiple choice question. a. $668,000. b. $726,000. c. $676,000.

2,000

The following information relates to Gross Company's defined benefit pension plan. PBO: 1/1/X1: $1.8 million; 12/31/X1: $1.9 million. Plan assets: 1/1/X1: 1.5 million; 12/31/X1: $1.7 million. Unrecognized loss: $200,000. Average remaining service period is 10 years. Gross Company should amortize the unrecognized loss by Multiple choice question. $2,000. $20,000. $10,000. $4,000. $0. $1,000. $50,000. $40,000.

4,000

The following information relates to Lesser Company's defined benefit pension plan. PBO: 1/1/X1: $1.5 million; 12/31/X1: $1.8 million. Plan assets: 1/1/X1: 1.6 million; 12/31/X1: $1.9 million. Unrecognized gains: $200,000. Average remaining service period is 10 years. Lesser Company should amortize an amount of the unrecognized gain equal to Multiple choice question. $20,000. $3,000. $1,000. $2,000. $30,000. $10,000. $40,000. $0. $4,000.

b

The following information relates to Sand Company's defined benefit pension plan at December 31, the end of the reporting period. PBO: $5 million; plan assets: $5.8 million. On its balance sheet, Sand should show Multiple choice question. a. a pension asset of $5.8 million and a pension liability of $5 million. b. a net pension asset of $800,000. c. nothing, because the plan is overfunded.

c

The following information relates to Tool Company's defined benefit pension plan at December 31, the end of the reporting period. PBO: $5 million; plan assets: $4.5 million. On its balance sheet, Tool Company should show Multiple choice question. a. a net pension liability of $9.5 million. b. a pension asset of $4.5 million and a pension liability of $5 million. c. a net pension liability of $500,000.

projected

The funded status of a defined benefit pension plan is determined by subtracting the fair value of the plan assets from the ___________ benefit obligation

Prior Service

The increase in the PBO due to retroactively applying a plan amendment is referred to as _______________ ____________ cost.

b

The increase in the projected benefit obligation attributable to employee work performed during the period is referred to as Multiple choice question. a. prior service cost. b. service cost. c. salary cost. d. pension cost.

b c

The interest cost on the projected benefit obligation is found by multiplying what two amounts? Multiple select question. a. Market interest rate b. Assumed discount rate c. Projected benefit obligation at the beginning of the year d. Average benefit obligation over the course of the year

a

The pension benefit obligation is reduced as Multiple choice question. a. benefits are paid to retired employees. b. contributions are made by employees. c. contributions are made by the employer.

c

The pension expense related to a defined benefit contribution plan is made up of changes that occur in Multiple choice question. a. only the pension obligation. b. only the plan assets. c. both the pension obligation and plan assets.

d

The pension obligation balance and the plan asset balance are reported Multiple choice question. a. in the income statement. b. in the statement of cash flows. c. in the balance sheet. d. in the disclosure notes.

b

The pension plan assets balance is reported Multiple choice question. a. in the balance sheet. b. in the disclosure notes. c. in the statement of cash flows. d. in the income statement.

a

The plan assets set aside by the employer are a key element in Multiple choice question. a. a defined benefit pension plan. b. both types of plan. c. a defined contribution pension plan.

a

The present value of retirement benefits as of the retirement date is determined _____ the present value of retirement benefits as of the current date. Multiple choice question. a. before b. at the same time as c. after

a c

The purposes of the PBGC are to (Select all that apply.) Multiple select question. a. administer terminated plans. b. administer all private pension plans. c. insure pension plans.

Contribution

Thrift plans, savings plans, and 401(k) plans are examples of typical defined ___________ plans

Contribution

Thrift plans, savings plans, and 401(k) plans are examples of typical defined ____________ plans

False

True or false: Pension expense is part of other comprehensive income.

True

True or false: The accumulated benefit obligation, the vested benefit obligation, and the projected benefit obligation are all ways to measure the pension obligation.

b

Turner Company's balance sheet shows a pension liability of $150,000. Its notes indicate that, during the current year, the company contributed $450,000 to the pension fund and retirees received $420,000 in pension payments. From this information we can deduce that the pension plan is Multiple choice question. a. overfunded by $30,000. b. underfunded by $150,000. c. underfunded by $120,000.

b d

Under IAS 19, which of the following components of the net pension cost are recognized in the income statement immediately (select all that apply): Multiple select question. a. changes in salary assumptions b. net interest costs c. investment gains and losses on plan assets d. service costs

a

Violet Company sponsors a defined benefit pension plan. The pension formula is calculated based on the following formula: 2% x number of service years x final salary. The assumed discount rate is 5%. If an employee is expected to retire in 20 years with a final annual salary of $200,000, has earned 30 years of service, and is expected to receive an annual pension for 30 years, the current PBO rounded to the full dollar will be Multiple choice question. a. $1,844,694. b. $563,626 c. $3,600,000. d. $695,247. e. $45,227.

b

Vogel Company contributes 6% of its employees' annual salary to a pension plan. Vogel sponsors a Multiple choice question. a. defined benefit pension plan. b. defined contribution pension plan.

c

Wald Company's financial statement notes relating to its pension plan disclose prior service cost of $45,000 and a net loss of $54,000. How would these amounts affect the balance sheet of Wald Company? Multiple choice question. a. Stockholders' equity would be reduced by $9,000. b. Stockholders' equity would be reduced by $54,000. c. Stockholders' equity would be reduced by $99,000.

b

What is the term used for benefits employees have the right to receive even if their employment ceases? Multiple choice question. a. Guaranteed benefits b. Vested benefits c. Nonvested benefits d. Projected benefits

a

When a pension plan is terminated, Multiple choice question. a. GAAP requires a change in earnings to be reported at the time of termination. b. GAAP requires a deferred gain or loss be reported at the time of termination. c. GAAP does not require anything at the time of termination.

Contributory

When employees make contributions to the pension plan in addition to employer contributions, it is called a(n) ________________ plan.

c

Which of the components of pension expense is reported separately from other components of pension expense on the income statement? Multiple choice question. a. Amortization of gains and losses b. Interest cost c. Service cost d. Expected return on plan assets

b c d

Which of the following are common examples of defined contribution pension plans? (Select all that apply.) Multiple select question. a. Traditional IRA plans b. Savings plans c. Thrift plans d. 401(k) plans e. Mortgage REITs f. Roth IRA plans

a b

Which of the following are correct regarding ERISA? (Select all that apply.) Multiple select question. a. Set vesting standards. b. Established the PBGC. c. Administers private pension funds. d. Ensures that all employees are covered by pensions.

a b e

Which of the following are often used in the pension formula of a defined benefit pension plan? (Select all that apply.) Multiple select question. a. Annual compensation and/or final pay b. Age c. Net income d. Expected stock market return e. Years of service

a b

Which of the following are typical investment options for contributions to pension plans? (Select all that apply.) Multiple select question. a. stocks b. bonds c. safe deposit boxes

a c d f

Which of the following are uncertainties related to funding a defined benefit pension plan? (Select all that apply.) Multiple select question. a. Return on plan assets b. Net income c. Retirement age d. Employee turnover e. Stock price f. Life expectancy

b c

Which of the following can cause a pension to be underfunded? (Select all that apply.) Multiple select question. a. Revising an estimate causing the PBO to decrease b. Prior service cost from amending the pension plan c. Revising an estimate causing the PBO to increase

a b d

Which of the following categories make up net pension cost under the IASB amendment to IAS No. 19? (Select all that apply.) Multiple select question. a. remeasurement gains or losses b. financing cost c. investment gains or losses d. cost of service

c d

Which of the following components of pension expense also affect the pension obligation? (Select all that apply.) Multiple select question. a. amortization of prior service cost b. return on plan assets c. service cost d. interest cost

b

Which of the following components of pension expense also affects pension plan assets? Multiple choice question. a. amortization of prior service cost b. return on plan assets c. service cost d. interest cost

a d

Which of the following components of pension expense reduce the expense? (Select all that apply.) Multiple select question. a. expected return on plan assets b. amortization of prior service cost c. service cost during current period d. amortization of gains e. interest cost accrued on pension liability

a b d e

Which of the following conditions must be met for a pension plan to qualify for special tax treatment? (Select all that apply.) Multiple select question. a. The plan must cover at least 70% of the company's employees. b. The plan must be funded before retirement and assets must be held by an irrevocable trust. c. The plan must cover at least 90% of a company's employees. d. Benefits must vest after a specific period of time. e. The plan cannot favor highly compensated employees.

a b c d f

Which of the following factors may change the balance of the PBO? (Select all that apply.) Multiple select question. a. prior service cost b. gains and losses c. service cost d. interest cost e. contributions by employer f. payments to retired employees

a b c d f

Which of the following factors may change the balance of the PBO? (Select all that apply.) Multiple select question. a. service cost b. interest cost c. payments to retired employees d. prior service cost e. contributions by employer f. gains and losses