Multiple Choice

1. MC021
In determining the present value of the prospective benefits (often referred to as the projected benefit obligation), the following are considered by the actuary:

a. retirement and mortality rate.

b. interest rates.

c. benefit provisions of the plan.

d. all of these factors.

2. MC072
The following information is related to the pension plan of King, Inc. for 2008.
Actual return on plan assets $200,000 Amortization of unrecognized net gain 82,500 Amortization of unrecognized prior service cost 150,000 Expected return on plan assets 230,000 Interest on projected benefit obligation 362,500 Service Cost 800,000
Pension expense for 2008 is

a. $1,195,000.

b. $1,165,000.

c. $1,030,000.

d. $1,000,000.

3. MC077
The following data are for the pension plan for the employees of Nickels Company.
1/1/07 12/31/07 12/31/08
Accumulated benefit obligation $7,500,000 $7,800,000 $10,200,000 Projected benefit obligation 8,100,000 8,400,000 11,100,000 Market-related asset value 6,600,000 8,700,000 9,300,000 Plan assets (at fair value) 6,900,000 9,000,000 9,900,000 Unrecognized net loss -0- 1,440,000 1,500,000 Settlement rate (for year) 10% 9% Expected rate of return (for year) 8% 7%
Nickels' contribution was $1,260,000 in 2008 and benefits paid were $1,125,000. Nickels esti-mates that the average remaining service life is 15 years.
The corridor for 2008 was $870,000. The amount of unrecognized net loss amortized in 2008 was

a. $100,000.

b. $96,000.

c. $42,000.

d. $38,000.

4. MC079
On January 1, 2008, Kinder Co. has the following balances:

Projected benefit obligation $2,100,000
Fair value of plan assets 1,800,000

The settlement rate is 10%. Other data related to the pension plan for 2008 are:

Service cost $180,000
Amortization of unrecognized prior service costs 60,000
Contributions 300,000
Benefits paid 105,000 Actual return on plan assets 237,000 Amortization of unrecognized net gain 18,000
The fair value of plan assets at December 31, 2008 is

a. $2,430,000.

b. $2,250,000.

c. $2,232,000.

d. $2,214,000.

5. MC050
When a company switches from a defined-benefit to a defined-contribution plan, any gain arising must generally be reported

a. in the current and prospective periods on a straight-line basis.

b. as a prior period adjustment.

c. currently as a gain.

d. in the current and prospective periods on a declining-balance method over the average remaining service life of existing employees.

6. MC036
The interest on the projected benefit obligation component of pension expense

a. reflects the incremental borrowing rate of the employer.

b. reflects the rates at which pension benefits could be effectively settled.

c. is the same as the expected return on plan assets.

d. may be stated implicitly or explicitly when reported.

7. MC068
Randel, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2007.

January 1, 2008 December 31,2008
2007 2008
Market-related asset value $4,200,000 $4,500,000
Projected benefit obligation 4,800,000 5,160,000 Accumulated benefit obligation 840,000 1,020,000 Unrecognized net (gains) and losses -0- (90,000)
The service cost component of pension expense for 2008 is $360,000 and the amortization of unrecognized prior service cost is $60,000. The settlement rate is 10% and the expected rate of return is 9%. What is the amount of pension expense for 2008?

a. $360,000

b. $522,000

c. $531,000

d. $432,000

8. MC092
The following information relates to Haywood, Inc.:
For the Year Ended December 31
2007 2008
Plan assets (at fair value) $1,260,000 $1,824,000
Pension expense 570,000 450,000 Accumulated benefit obligation 1,620,000 1,884,000 Annual contribution to plan 600,000 450,000 Unrecognized prior service cost 480,000 420,000
Prior to 2007, cumulative pension expense recognized equaled cumulative contributions.
The amount reported as an intangible asset on the December 31, 2008 balance sheet is

a. $ -0-.

b. $60,000.

c. $90,000.

d. $30,000.

9. MC088
Barkley Corporation received the following report from its actuary at the end of the year:
The amount reported as the total pension liability at December 31, 2008 is
December 31,2007 December 31,2008

Projected benefit obligation $1,600,000 $1,800,000 Market related asset value 1,400,000 1,420,000 Accumulated benefit obligation 1,300,000 1,480,000 Fair value of pension plan assets 1,380,000 1,440,000 Prepaid pension cost 80,000 100,000
Assume that no prepaid or accrued pension cost exists on January 1, 2007

a. $ -0-.

b. $140,000.

c. $40,000.

d. $60,000.

10. MC085
The following information relates to the pension plan for the employees of Polzin Co.:
1/1/07 12/31/07 12/31/08
Accumulated benefit obligation $5,280,000 $5,520,000 $7,200,000 Projected benefit obligation 5,580,000 5,976,000 8,004,000 Fair Value of Plan assets 5,100,000 6,240,000 6,888,000 Market-related asset value 4,920,000 6,192,000 6,780,000 Unrecognized net (gain) or loss -0- (864,000) (960,000) Settlement rate (for year) 11% 11% Expected rate of return (for year) 8% 7%
Polzin estimates that the average remaining service life is 16 years. Polzin's contribution was $378,000 in 2008 and benefits paid were $282,000.
The amount of unrecognized net gain amortized in 2008 is

a. $15,300.

b. $15,000.

c. $11,626.

d. $9,977.

11. MC065
Presented below is pension information related to Tyler, Inc. for the year 2008:
Service Cost $72,000
Interest on projected benefit obligation 54,000
Interest on vested benefits 24,000
Amortization of prior service cost due to increase benefit 12,000
Expected return on plan assets 18,000
The amount of pension expense to be reported for 2008 is

a. $108,000.

b. $144,000.

c. $162,000.

d. $120,000.

12. MC076
The following data are for the pension plan for the employees of Nickels Company.
1/1/07 12/31/07 12/31/08
Accumulated benefit obligation $7,500,000 $7,800,000 $10,200,000 Projected benefit obligation 8,100,000 8,400,000 11,100,000 Market-related asset value 6,600,000 8,700,000 9,300,000 Plan assets (at fair Value) 6,900,000 9,000,000 9,900,000 Unrecognized net loss -0- 1,440,000 1,500,000 Settlement rate (for year) 10% 9% Expected rate of return (for year) 8% 7%

Nickels' contribution was $1,260,000 in 2008 and benefits paid were $1,125,000. Nickels esti-mates that the average remaining service life is 15 years.
The actual return on plan assets in 2008 was $765,000. The unexpected gain on plan assets in 2008 was

a. $156,000.

b. $135,000.

c. $114,000.

d. $72,000.

13. MC038
The actual return on plan assets

a. is equal to the change in the fair value of the plan assets during the year.

b. includes interest, dividends, and changes in the market value of the fund assets.

c. is equal to the actual rate of return times the fair value of the plan assets at the beginning of the period.

d. all of these.

14. MC051
A minimum liability for pension expense is reported when

a. the projected benefit obligation exceeds the fair value of pension plan assets.

b. the accumulated benefit obligation exceeds the fair value of pension plan assets.

c. the pension expense reported for the period is greater than the funding amount for the same period.

d. vested benefits exceed the fair value of pension plan assets.

15. MC053
Which of the following statements is correct?

a. There is an account titled Additional Pension Liability.

b. There is an account titled Minimum Pension Liability.

c. Accrued pension cost and additional pension liability should be reported separately on the balance sheet.

d. None of these.

16. TF018
Companies can combine the accrued pension cost balance and the additional liability balance for balance sheet purposes.

a. True

b. False

17. TF009
Companies recognize the projected benefit obligation in their accounts and in their financial statements.

a. True

b. False

18. TF003
An employer reports no liability on its balance sheet in a defined-contribution plan.
a. True

b. False

19. TF020
Companies must disclose a reconciliation of how the projected benefit obligation and the fair value of plan assets changed during the year either in their financial statements or in the notes.
a. True

b. False

20. TF013
The difference between the expected return and the actual return is referred to as the unexpected gain or loss.

a. True

b. False