ch. 19 quiz

at the beginning of 2017, dashboard company amended its defined benefit plan. the amendment entitled six active participating employees to receive increased future benefits based on their prior service. brent's actuary determined that the prior service cost for this amendment amounts to $520,000. employee A is expected to retire after 1 year, employee B after 3, employee C after 5, employee D after 7. under the straight-line method what is amortization to increase pension expense

$130,000 find average remaining in service life which is sum of years of remaining service divided by the number of employees (1+3+5+7)/4 =4 then take total prior service cost divided by average remaining service life $520,000/4 = $130,000

on january 1, 2016, ollie and arrow company adopted a healthcare plan for its retired employees. to determine eligibility for benefits, the company retroactively gives credit to the date of hire for each employee. the following information is available about the plan: service cost: $40,000 accumulated post-retirement benefit obligation 1/16: $150,000 expected return on plan assets: 0 amortization of prior service cost: $15,000 payments to retired employees during 2016: $10,000 interest rate: 8% average remaining service period of active plan participants: 10 years what is the credit amount to accrued post-retirement benefit cost?

$150,000

the micah company has a defined benefit pension plan for its employee. the following information pertains to the pension plan as of december 31, 2017: the amount of the december 31, 2017, projected pension benefit obligation is projected benefit obligation jan 1, 2017: $1,600,000 service cost, 2017: $750,000 interest cost, 2017: $100,000 payment to retired employees: $80,000 actual return on plan assets: $99,600

$2,370,000 beginning balance + service costs + interest costs - payments to retired employees = projected pension benefit obligation. $1,600,000 + $750,000 + $100,000 - $80,000 = $2,370,000

on january 1, 2016, ollie and arrow company adopted a healthcare plan for its retired employees. to determine eligibility for benefits, the company retroactively gives credit to the date of hire for each employee. the following information is available about the plan: service cost: $40,000 accumulated post-retirement benefit obligation 1/16: $150,000 expected return on plan assets: 0 amortization of prior service cost: $15,000 payments to retired employees during 2016: $10,000 interest rate: 8% average remaining service period of active plan participants: 10 years compute the OPRB expense for 2016 if the company uses the average remaining service life to amortize the prior service cost.

$65,000 service cost + interest cost + expected return on plan assets + amortization of prior service costs $40,000 + ($150,000 x 8%) + 0 + $15,000 = $65,000

cheero company's actuary has computed its prior service cost to be $4,000,000. cheero amortizes the prior service cost by the straight-line method over the remaining 25-year service life of its active employees. during the current year, palm also recognizes $500,000 of service cost and $35,000 of interest cost. compute palm's pension expense for the current year.

$695,000 service cost + interest expense + amortization expense: $500,000 +$35,000 + ($4,000,000/25) = $695,000

in 2011, IASB amended which IAS resulting in significant changes in pension accounting?

19

at the beginning of year 1 post side company has 3 employees A, B, and C. employee A has 4 expected years of future service, employee B has 5 expected years of future service, and employee C has 6 expected years of future service. using the year-of-future-service method, compute the amortization fraction for year 3.

3/15 # of employees/total expected years of future service = 3 / (4+5+6)

in the computation of the net post-retirement benefit expense for OPRBs, the expected return on plan assets is generally zero because

OPRBs are usually not funded

which of the following is true?

a company records a loss and liability for termination benefits paid to employees when the employee accepts the offer and the amount can be reasonably estimated

if a company rants retroactive benefits to its employees, the prior service cost is recorded as

a decrease in other comprehensive income and an increase in a liability

the interest component of the net post-retirement benefit expense is based on the _________ while the interest component of the pension expense is based on the _______.

accumulated post-retirement benefit obligation; projected benefit obligation the interest component of the net post-retirement benefit expense is based on the accumulated post-retirement benefit obligation, while the interest component of the pension expense is based on the projected benefit obligation

certified professionals who are trained to determine future risk are

actuaries they are certified professionals who are trained to determine future risk, estimate probabilities of future events, make price decisions, estimate present values, and formulate investment strategies

if the net gain or loss exceeds the corridor, the amount in excess of the corridor is _______________________. a company ________ any amortization of net loss to the pension expense. it __________ any amortizations of net gain from the pension expense.

amortized over the remaining service life of active employees adds subtracts

which alternative is a form of "pay-as-you-go" accounting whereby the employer's liability arises only during the period in which pension benefits will be paid to employees?

amount payable to retirees termination liability is based on the argument that the employer's obligation should be limited to the amount that it must pay when the plan is terminated

vested benefits are pension benefits earned by employees that

are not contingent on future service and will be received if they terminate employment vested benefits are pension benefits earned by employees that are not contingent on future service with the company. that is, the employees will receive retirement benefits based on service to date, even if they terminate employment.

given the following information: what is the pension expense for 2017? service cost: $20,000 (2016); $24,000 (2017) plan assets at beginning of year: $180,000 projected benefit obligation at beginning of year: $200,000 discount rate: 7% actual and expected rate of return on plan assets: 5%

b. $29,000 service cost for 2017 + (plan assets at beginning of year x actual and expected rate of return on plan assets) - (projected benefit obligation at beginning of year x discount rate) = pension expense for 2017. $24,000 + (200,000 x 7%) - (180,000 x 5%) = $29,000

under the corridor approach, amortization of any net gain or loss is included in the pension expense of a given year if at the

beginning of the year, the cumulative net gain or loss exceeds 10% of the greater of the beginning of the year projected benefit obligation or the beginning of the year fair value of the plan assets under the corridor approach, amortization of an net gain or loss is included in the pension expense of a given year if the beginning of the year cumulative net gain or loss (included in accumulated other comprehensive income) exceeds a "corridor." the corridor is defined as 10% of the greater of the beginning of the year projected benefit obligation or the beginning of the year fair value of the plan assets.

a gain or loss with regards to pensions can be recognized immediately or it can be deferred and amortized in future periods to pension expense. the minimum amount that must be amortized is determined by using which method?

corridor amortization the minimum amount that must be amortized is determined by using a method called corridor amortization

which prior service cost method would violate the all-inclusive income concept because the amounts would never be included in the income statement

decrease retained earnings and record a liability current accounting guidance provides 3 methods for companies to recognize gains and losses in pension expense: immediate recognition in pension expense, minimum amortization using the corridor approach, any systematic and rational approach that results in faster amortization than the corridor approach

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

defined benefit plan a defined benefit plan is a type of plan in which the future employee benefit is defined by a formula and the mount that the company contributes into the plan depends on the future needs of the plan

which of the following types of pension plan will provide benefits that are dependent on the return on the investment of contributions?

defined contribution plan

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

employers that used defined benefit plans are assuming more risks than employers that use defined contribution plans it is the responsibility of the company to contribute sufficient assets to ensure that there are enough resources to all the payments to retirees that are promised in the pension plan contract. in the defined benefit plan, most of the risks lie within the company because the payments to the retired employees are defined and the company has the obligation to ensure that those amounts are paid, perhaps many years in the future.

which of the following is not a major disclosure for defined pension plan?

expected contributions to be made by the company to the plan in the current year

if a pension plan is both contributory and qualified, it is

funded by both employer and employee and governed by IRC

which of the following statements is true?

funding for post-retirement health care benefits is not legally required, and contributions are not tax deductible companies often do not fund other post-retirement benefits (OPRBs) because there are no legal requirements and, although the payments for OPRB service are tax deductible, the contributions into the plan are not tax-deductible

which of the following statements regarding IAS, employee benefits is false?

in a particular year, if the amount funded is less than the pension expense, the difference would increase the accrued pension liability if underfunded. in a particular year, if the amount funded is less than the pension expense, the difference would decrease the accrued pension liability if underfunded.

the pension benefit guaranty corporation's purpose is to

insure defined benefit pension plans the pension benefit guaranty corporation (pbgc) is an organization that provides benefits to employees covered by plans that have been terminated (usually because of bankruptcy of the sponsoring company). the pbgc receives an annual fee for every employee covered by a pension plan that is subject to the pbgc.

which of the following pairings of terms and definitions for pension expense is incorrect?

interest costs - expected increase in the plan assets due to investing activities

the projected benefit obligation:

is the actuarial present value, at a specified future date, of all the benefits attributed by the pension benefit formula to employee service rendered prior to that date

which of the following is not one of the methods for companies to recognize gains and losses to pension expense?

maximum amortization using the corridor approach

the disclosures a company must make for its defined benefit pension plan include all of the following except:

names and ages for all employees vested in the plan

the expense for other post-retirement benefits, such as health care benefits, dental benefits, and eye care benefits, currently is accounted for

on an accrual basis GAAP requires that a company accrue the cost of other post-retirement benefits (OPRBs) during the periods in which its employees earn the benefits

on the statement of cash flows, a company reports the cash it paid to fund it pension plan as a cash outflow in the

operating activities section

________ are provided to former employees after employment but before retirement?

other post-employment benefits

the projected benefit obligation is equal to the

present value of all retirement benefits earned as of a specified date, both vested and non-vested, by employees using anticipated future salary levels in the pension plan formula the projected benefit obligation is the present value of the future retirement payments earned by the employees to data (based on their expected future compensation levels)

the actuarial present value, at a specified date, of all the benefits attributed by the pension benefit formula to employee service rendered prior to that date is called the

projected benefit obligation the actuarial present value, at a specified date, of all the benefits attributed by the pension benefits formula to employee service rendered prior to that date is called the projected benefit obligation

a plan that covers the majority of the company's employees, limits contributions to a certain amount and meets internal revenue rules and regulations is called a:

qualified pension plan

the interest rate that may be used to compute the service cost component of pension expense is equal to the

rate of return on high quality fixed-income investments the discount (interest) rate used to calculate the service cost is the rate of return on high-quality fixed-income investments currently available

GAAP for pension plans requires companies with defined benefit pension plans to

recognize pension expense based on accrual-basis concepts accounting for the costs of pension plans was initially established in 1966 when GAAP was amended to require the use of the accrual method for recognition of pension expense

any under-funding of an OPRB is

reported as a liability on the balance sheet

for a defined benefit pension plan, an increase in the projected benefit obligation due to employees providing service to the company during the current period is called the

service cost

for a defined benefit pension plan, pension expense consists of 5 components, for which the formula is

service cost + interest cost - expected return on plan assets + amortization of prior service cost +(-) gain (loss)

under the amended IAS, employee benefits, pension expense will have which 2 components?

service costs and net interest under the amended IAS, employee benefits, pension expense will have 2 components: service cost and net interest expense

in the reconciliation of the beginning and ending fair value of the plan assets, a company should disclose

the actual return on its pension plan assets

under a defined contribution pension plan

the company makes no guarantee that the employee will receive a certain amount of benefits during retirement and the employee is given a choice of investing strategies and funds

under a defined benefit pension plan

the employee receives an income after retirement based on his/her years of service and income

which of the following statements is false regarding a defined contribution pension plan?

the pension benefits to be received by the employee during retirement are defined in the plan a defined contribution pension plan is a type of plan in which the employer's contribution into the pension fund is based on a formula, so that the future benefits are limited to an amount that can be provided by the contributions made during the employee's service to the company and the returns earned on the investment of those contributions.

matthew corporation began a defined benefit plan on january 1, 2016. during 2016, the service cost was $450,000 to the pension plan for 2016. the actuary said the projected benefit obligation at december 31, 2016 was $450,000. as of december 31, 2016

the pension plan is fully funded and matthew does not need to report a liability regarding the pension plan at december 31, 2016 using the given information, the pension plan is fully funded and matthew does not need to report a liability for the pension plan at december 31, 2016

if a company has multiple defined benefit pension plans

the plans must be reported separately on the balance sheet