Problem
A. Why can exercising stock options can create cash flow problems for managers at the exercise date? What is an alternative to this problem?
B. Answer the following questions about defined benefit pension plans:
a. Companies with defined benefit pension plans must recognize pension expense each period. What are the five components of pension expense? Briefly describe each component.
b. How does each component of pension expense effect pension expense during the period (increase, decrease, or uncertain)?
c. What is the difference between the accumulated pension obligation and the projected pension obligation?
d. What determines whether a pension plan is underfunded or overfunded?