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Exam 17: Pensions and Other Postretirement Benefits

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Question 91

Multiple Choice

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Consider the following: I. Present value of vested benefits at present pay levels. II) Present value of nonvested benefits at present pay levels. III) Present value of additional benefits related to projected pay increases. Which of the above constitutes the accumulated benefit obligation?

A) I & II.
B) I, II, III.
C) II & III.
D) II only.

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Question 92

Multiple Choice

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Data for 2013 were as follows: PBO, January 1, $240,000 and December 31, $270,000; pension plan assets (fair value) January 1, $180,000, and December 31, $230,000. The projected benefit obligation was underfunded at the end of 2013 by:

A) $30,000.
B) $60,000.
C) $20,000.
D) $40,000.

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Question 93

Multiple Choice

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What is the service cost to be included in the current year's postretirement benefit expense?

The attribution period for postretirement health care plans does not include:

Which of the following is true?

Pension data for Goldman Company included the following for the current calendar year: Required: Determine pension expense for the year.

Rodeo Corporation amended its defined benefit pension plan on January 31, 2013, to increase retirement benefits earned with each service year. The actuary estimated the prior service cost to be $216,000. Rodeo's 80 present employees are expected to retire at the rate of about 10 each year at the end of each of the next eight years beginning on December 31, 2013. Required: Using the service method, calculate the amount of prior service cost to be amortized to pension expense in each of the next eight years.

Differentiate between the projected benefit obligation, the accumulated benefit obligation, and the vested benefit obligation.

A gain from changing an estimate regarding the obligation for pension plans will:

The process of assigning the cost of postretirement benefits to the years during which those benefits are assumed to be earned by employees is called:

The income statement of Starboard Industries includes $12 million for the amortization of a loss resulting from the company's actuary changing an estimate used in calculating the obligation for the pension plan. Does Starboard Industries prepare its financial statements according to U.S. GAAP or IFRS?

Patey Technologies calculated pension expense for its underfunded pension plan as follows: Required: What is the effect of the components of pension expense on Patey's statement of comprehensive income?

Waddle Company amended its defined benefit pension plan on January 1, 2013, to increase retirement benefits earned with each service year. The actuary estimated the prior service cost to be $216,000. Waddle's 80 present employees are expected to retire at the rate of about 10 each year at the end of each of the next eight years. Required: 1. Using the service method, calculate the amount of prior service cost to be amortized to pension expense in 2013. 2. Using the straight-line method, calculate the amount of prior service cost to be amortized to pension expense in 2013.

Dharma Initiative, Inc., has a defined benefit pension plan. Characteristics of the plan during 2013 are as follows: The expected long-term rate of return on plan assets was 8%. There were no AOCI balances related to pensions on January 1, 2013, but at the end of 2013, the company amended the pension formula creating a prior service cost of $24 million. Dharma Initiative prepares its financial statements according to International Financial Reporting Standards. Required: 1. Calculate the pension expense for 2013. 2. Prepare the journal entry to record pension expense, gains or losses, past service cost, funding, and payment of benefits for 2013. 3. What amount will Dharma Initiative report in its 2013 balance sheet as a net pension asset or net pension liability?

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?

The net pension liability (PBO minus plan assets) is decreased by:

Differentiate between a defined contribution pension plan and a defined benefit pension plan.

A statement of comprehensive income does not include:

Hart Corporation has an unfunded postretirement health care benefit plan. Life insurance and medical care benefits are provided to employees who render 12 years of service and attain age 55 while in service to the company. At the end of 2013, John Sousa is 35. He was hired by Hart five years ago at age 30 and is expected to retire at the age of 62. The expected postretirement benefit obligation for John is $50,000 at the end of 2013. Required: Calculate the accumulated postretirement benefit obligation at the end of 2013 and the service cost for 2013 pertaining to John.

The attribution approach required by GAAP for postretirement health care plans is to assign: