1.Which of the following describes defined benefit pension plans?
a The investment risk is borne by the employee.
b The plans are simple and easy to construct.
c The investment risk is borne by the employer.
d Retirement benefits depend on the individual's account balance.
2.The portion of the obligation that plan participants are entitled to receive regardless of their continued employment is called the:
a Vested benefit obligation.
b Retiree benefit obligation.
c Actual benefit obligation.
d True benefit obligation.
3.The PBO is increased by:
A. An increase in the average life expectancy of employees.
B. Amortization of prior service cost.
C. An increase in the actuary's assumed discount rate.
D. A return on plan assets that is lower than expected.
4.Interest cost will:
a Increase the PBO and increase pension expense.
b Increase pension expense and reduce plan assets.
c Increase the PBO and reduce plan assets.
d Increase pension expense and reduce the return on plan assets.
5.A company's defined benefit pension plan had a PBO of $265,000 on January 1, 2009. During 2009, pension benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service cost for 2009 was $80,000. Plan assets (fair value) increased during the year by $45,000. The amount of the PBO at December 31, 2009, was:
Answer
a $225,000.
b $305,000.
c $331,500.
d None of these is correct.
6.Louie Company has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $8,000. The discount rate applied by the actuary was 8%. What was the service cost for the year?
a $ 2,000.
b $12,000.
c $18,000.
d $92,000.
7.An underfunded pension plan means that the:
a PBO is less than plan assets.
b PBO exceeds plan assets.
c ABO is less than plan assets.
d ABO exceeds plan assets.
8.The pension expense includes periodic changes that occur:
a In the PBO.
b In the PBO and the plan assets.
c In the plan assets.
d In the PBO and the ABO.
9.Assume that at the beginning of the current year, a company has a net gain-AOCI of $25,000,000. At the same time, assume the PBO and the plan assets are $200,000,000 and $150,000,000, respectively. The average remaining service period for the employees expected to receive benefits is 10 years. By the corridor approach, what is the amount of amortization to pension expense for the year?
Answer
a $3,000,000.
b $ 500,000.
c $2,500,000.
d $1,500,000.
10.Scallion Company received the following reports on its defined benefit pension plan for the current calendar year:
PBO PLANT ASSETS
Balance, January 1 $400,000 Balance, January 1 $250,000
Service Cost 195,000 Actual Return 30,000
Interest Cost 32,000 Annual Contribution 110,000
Benefits Paid (80,000) Benefits Paid (80,000)
---------------------- --------------
Balance, December 31 547,000 Balance, December 31 310,000
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The long-term expected rate of return on plan assets is 10%. Assuming no other data are relevant, what is the pension expense for the year?
a $197,000.
b $227,000.
c $172,000.
d $202,000.
11.Accumulated other comprehensive income:
Answer
a is a liability.
b might include prior service cost.
c includes accumulated pension expense.
d is reported in the income statement.
12.At December 31, 2008, Mongo, Inc. reported in its balance sheet a net loss of $3 million related to its pension plan. The actuary for Mongo at the end of 2009 increased her estimate of future salary levels. Mongo's entry to record the effect of this change will include:
Answer
a) a debit to Loss-OCI and a credit to PBO.
b) a debit to PBO and a credit to Loss-OCI.
c) a debit to pension expense and a credit to PBO.
d) a debit to pension expense and a credit to Loss-OCI.
13.The accounting for defined contribution pension plans is easy because each year:
A. The employer records pension expense equal to the amount paid out to retirees.
B. The employer records pension expense based on an amount provided by the actuary.
C. The employer records pension expense equal to the annual contribution.
D. The employer records pension expense based on the earnings of the plan assets.
14.Presented below is pension information related to Pete, Inc. for the year 2008:
Service cost $96,000
Interest on projected benefit obligation (at 6%) 72,000
Amortization of prior service cost 16,000
Expected return (10%) on plan assets (Actual return was -4.8%) 24,000
PBO at 1/1/2008 $1,200,000
Plan assets fair value at 1/1/2008 1,000,000
Net Loss -AOCI at 1/1/2008 110,500
The amount of pension expense to be reported for 2008 is
A. $144,000
B. $192,000
C. $216,000
D. $160,000