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