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Accounting for Pension Obligations

1. Interest cost included in pension expense recognized for a period by an employer sponsoring a defined-benefit pension plan represents the
A) shortage between the expected and actual returns on plan assets
B) increase in the projected benefit obligation due to the passage of time
C) increase in the fair value of plan assets due to the passage of time
D) amortization of the discount on accumulated OCI (PSC)

2. Seigel Co. maintains a defined-benefit pension plan for its employees. At each balance sheet date, Yeager should report a pension asset/liability equal to the
A) accumulated benefit obligation
B) projected benefit obligation
C) accumulated benefit obligation
D) funded status relative to the projected benefit obligation

3. Prior service cost is amortized on a
A) straight-line basis over the expected future years of service
B) years-of-service method or on a straight-line basis over the average remaining service life of active employees
C) straight-line basis over 15 years
D) straight-line basis over the average remaining service life of active employees or 15 years, whichever is longer

4. Gains and losses that relate to the computation of pension expense should be
A) recorded currently as an adjustment to pension expense in the period incurred
B) recorded currently and in the future by applying the corridor method which provides the amount to be amortized
C) amortized over a 15-year period
D) recorded only if a loss is determined

5. According to the FASB, recognition of a liability is required when the projected benefit obligation exceeds the fair value of plan assets. Conversely, when the fair value of plan assets exceeds the projected benefit obligation, the Board
A) requires recognition of an asset
B) requires recognition of an asset if the excess fair value of plan assets exceeds the corridor amount
C) recommends recognition of an asset but does not require such recognition
D) does not permit recognition of an asset

6. Which of the following statements about the expected postretirement benefit obligation (EPBO) is not correct?
A) The EPBO is an actuarial present value.
B) The EPBO is recorded in the accounts.
C) The EPBO is used in measuring periodic expense.
D) All of these are correct.

7. The main purpose of the Pension Benefit Guaranty Corporation is to
A) require minimum funding of pensions
B) require plan administrators to publish a comprehensive description and summary of their plans
C) administer terminated plans and to impose liens on the employer's assets for certain unfunded pension liabilities
D) all of these

8. Which of the following is not a characteristic of a defined-contribution pension plan?
A) The employer's contribution each period is based on a formula.
B) The benefits to be received by employees are usually determined by an employee's 3 highest years of salary defined by the terms of the plan.
C) The accounting for a defined-contribution plan is straightforward and uncomplicated.
D) The benefit of gain or the risk of loss from the assets contributed to the pension fund are borne by the employee.

9. The projected benefit obligation is the measure of pension obligation that
A) is required to be used for reporting the service cost component of pension expense
B) requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels
C) requires the longest possible period for funding to maximize the tax deduction
D) is not sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense

10. A corporation has a defined-benefit plan. A pension liability will result at the end of the year if the
A) projected benefit obligation exceeds the fair value of the plan assets.
B) fair value of the plan assets exceeds the projected benefit obligation.
C) amount of employer contributions exceeds the pension expense.
D) amount of pension expense exceeds the amount of employer contributions.

11. Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries in its computation?
A) Vested benefit obligation
B) Accumulated benefit obligation
C) Projected benefit obligation
D) Restructured benefit obligation

12. Whenever a defined-benefit plan is amended and credit is given to employees for years of service provided before the date of amendment
A) both the accumulated benefit obligation and the projected benefit obligation are usually greater than before.
B) both the accumulated benefit obligation and the projected benefit obligation are usually less than before.
C) the expense and the liability should be recognized at the time of the plan change.
D) the expense should be recognized immediately, but the liability may be deferred until a reasonable basis for its determination has been identified.

13. If no change in actuarial estimates occurred during 2011, Hopson's projected benefit obligation at December 31, 2011 was:
A) $64,200
B) $75,000
C) $79,200
D) $82,200

14. What is the amount of the pension liability that should be shown on Vargas' December 31, 2011 balance sheet?
A) $7,200,000
B) $2,700,000
C) $1,620,000
D) $1,080,000

15. The amount of postretirement expense for 2011 is:
A) $184,500
B) $192,000
C) $211,500
D) $216,000

16. The amount reported as the liability for pensions on the December 31, 2010 balance sheet is:
A) $0
B) $30,000
C) $360,000
D) $390,000

17. The fair value of plan assets at December 31, 2011 is:
A) $2,430,000
B) $2,250,000
C) $2,232,000
D) $2,214,000

18. The service cost component of pension expense for 2011 is $840,000 and the amortization of prior service cost due to an increase in benefits is $180,000. The settlement rate is 10% and the expected rate of return is 8%. What is the amount of pension expense for 2011?
A) $1,716,000
B) $1,680,000
C) $1,608,000
D) $1,440,000

19. What amount should be reported for pension expense in 2011?
A) $1,365,000
B) $1,335,000
C) $1,515,000
D) $1,155,000

20. Which of the following items should be included in pension expense calculated by an employer who sponsors a defined-benefit pension plan for its employees?
A) Yes ; Yes
B) Yes ; No
C) No ; Yes
D) No ; No

See attached document for full questions.

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Question 1
ANSWER increase in the projected benefit due to the passage of time. An interest cost which is computed by multiplying the beginning PBO with the interest rate is added to other pension-related expenses such as service costs in computing to a firm's total pension expenses for the period

Question 2
ANSWER funded status relative to the projected benefit obligation
In the balance sheet the company presents financial data pertaining to how much obligations it estimates it has at the balance sheet date pertaining to the defined-benefit pension plan it offers to its employees when these employees retire, and the amount it has already set aside to meet this future obligations.

Question 3
ANSWER the Statement of Financial Accounting Standards No. 5 states that "The prior service costs should be amortized on a straight-line basis over the average period from the plan effective or amendment date until the benefits become vested."

Question 4
ANSWER recorded currently and in the future by applying the corridor ...

Solution Summary

Accounting for pension obligations are examined. Amortization of the discount on accumulated OCI is examined.

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