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Exam 20: Accounting for Postemployment Benefits

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Question 41

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The McMurry Company offers employees a defined contribution pension plan.In 2010, McMurry contributed $75, 000 to the plan, which paid $95, 000 to retired employees.Which of the following statements is true?

A) McMurry will record an accrued liability of $20, 000.
B) McMurry will report pension expense of $75, 000.
C) McMurry will recognize prior service cost of $20, 000.
D) McMurry will recognize actuarial gains and losses on the plan over current and future periods.

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Question 42

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Which of the following statements is true regarding a defined contribution pension plan?

A) The pension benefits to be received by the employee during retirement are defined in the plan.
B) Defined contribution plans are the most popular type of pension plan for large corporations.
C) Defined contribution plans do not define the required benefits that must be paid to retired employees.
D) Employers that use defined contribution plans are assuming more risks than employers that use defined benefit plans.

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Question 43

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Vested benefits are

In addition to providing pensions to their employees, many companies also offer postemployment benefits.These are benefits going to former employees after employment but before retirement. Required: Describe how the cost of these benefits is to be accounted for under current GAAP.

Corporate employees are expected to retire on average in 25 years and to live 16 years after retiring.The pension plan's interest (discount) rate is 12% and the expected return on plan assets is 10%.Compute the PBO (Projected Benefit Obligation) if total annual benefits expected to be paid out to retirees is expected to be $210, 000.The following factors are available: $\begin{array}{ll}&10\%&12\%\\\text { Present value of an annuity for } 16 \text { years } & 7.824&6.974 \\\text { Present value of } \$ 1 \text { for } 25 \text { years } & .0923&.0589\end{array}$

The Susan Company has a defined benefit pension plan for its employees.The following information pertains to the pension plan: $\begin{array}{ll}\text { Projected benefit obligation, December } 31,2010 & \$ 1,680,000 \\\text { F air value of plan assets, December 31, 2010 } & 1,739,000 \\\text { Accrued/prepaid pension cost (asset) , December 31, 2009 } & 51,300\end{array}$ The December 31, 2010 adjusting journal entries include a

In 2010, the Barbara Company initiated a defined benefit pension plan.It recorded $240, 000 as pension expense and paid $280, 000 to a funding agency.As a result, Barbara will report

Disclosures for vested benefits