Pensions And Other | Test Questions & Answers – Ch17

Intermediate Accounting, 10e (Spiceland)

Chapter 17 Pensions and Other Postretirement Benefits

1) The projected benefit obligation may be less reliable than the accumulated benefit obligation.

Difficulty: 1 Easy

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Evaluate

AACSB: Reflective Thinking

AICPA/Accessibility: FN Risk Analysis / Keyboard Navigation

2) The amount of the vested benefit obligation is less than the projected benefit obligation and more than the accumulated benefit obligation.

Difficulty: 2 Medium

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

3) An upward revision of inflation and compensation trends would likely cause a gain in the pension benefit obligation.

Difficulty: 2 Medium

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

4) The difference between pension plan assets and the PBO is equal to the funded status of the plan.

Difficulty: 1 Easy

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

5) A net pension asset is the excess of the projected benefit obligation over the plan assets.

Difficulty: 1 Easy

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

6) If a pension plan is underfunded, the company has a net loss—OCI.

Difficulty: 2 Medium

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

7) Prior service cost is recognized as pension expense over a period of several years.

Difficulty: 1 Easy

Topic: Pension expense‒Prior service cost

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

8) A net gain or net loss affects pension expense only if it exceeds 10% of the pension benefit obligation or 10% of plan assets, whichever is lower.

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

9) Pension expense and funding amounts are both accounting decisions.

Difficulty: 1 Easy

Topic: Pension expense‒Service and interest cost

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

10) The expected postretirement benefit obligation (EPBO) is the discounted present value of the total benefits expected to be paid by the employer to the plan participants.

Difficulty: 1 Easy

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

11) There almost always is a balance sheet liability for plans of postretirement benefits other than pensions since very few of these plans are funded.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Accounting

Learning Objective: 17-11 Determine the components of postretirement benefit expense.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

12) Conceptually, the service method provides a better matching of costs and benefits in amortizing prior service cost than does the straight-line method.

Difficulty: 1 Easy

Topic: Service method‒Prior service‒Appendix

Learning Objective: Appendix 17 - Service Method of Allocating Prior Service Cost.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

13) Which of the following is not a requirement for a qualified pension plan?

A) It cannot discriminate in favor of highly paid employees.

B) It must cover at least 80% of the employees.

C) It must be funded in advance of retirement.

D) Benefits must vest after a specified period of service, commonly five years.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Characteristics

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

14) Which of the following is not a characteristic of a qualified pension plan?

A) It can be limited to highly compensated salaried employees.

B) It must be funded in advance of retirement.

C) Benefits must vest after a specified period of service.

D) It must cover at least 70% of employees.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Characteristics

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

15) Which of the following is not true with regard to pension plans?

A) Pension plans are arrangements designed to provide income to individuals during their retirement years.

B) A defined contribution pension plan creates a liability for the employer.

C) A pension fund (plan assets) is established by the employer for a defined benefit pension plan.

D) Pension expense is reported for a defined benefit pension plan.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Characteristics

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

16) A 401(k) plan:

A) is a type of defined contribution pension plan.

B) is a type of defined benefit pension plan.

C) creates a liability for the employer.

D) creates a liability for the employee.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Characteristics

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

17) Which of the following is not usually part of the pension formula under a defined benefit plan?

A) Age at retirement.

B) Number of years of service.

C) Seniority at time of retirement.

D) Compensation level.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined benefit

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: / Keyboard Navigation

18) Which of the following describes defined benefit pension plans?

A) They raise few accounting issues for employers.

B) Retirement benefits depend on how much money has accumulated in an individual's account.

C) They are simple to construct.

D) Retirement benefits are based on the plan benefit formula.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined benefit

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

19) 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.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined benefit

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

20) The key elements of a defined benefit pension plan include each of the following except:

A) The pension expense.

B) The plan assets.

C) Amortized future benefits.

D) The employer's obligation.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined benefit

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

21) The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to a noncurrent liability?

A) A defined benefit plan only.

B) A defined contribution plan only.

C) Both a defined benefit and a defined contribution plan.

D) This is not the correct entry.

Difficulty: 2 Medium

Topic: Nature of pension plans‒Defined benefit

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

22) Which of the following is not an uncertainty that complicates determining how much to set aside each year to ensure that sufficient funds are available to provide the benefits promised under a defined benefit plan?

A) Employee turnover.

B) Number of employees who retired last year.

C) Future inflation rates.

D) Future compensation levels.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined benefit

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

23) To help assess the uncertainties that surround a defined benefit pension plan, corporations frequently hire a(n):

A) CPA.

B) Attorney.

C) Investment analyst.

D) Actuary.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined benefit

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Industry / Keyboard Navigation

24) The employer has an obligation to provide future benefits for:

A) Defined benefit pension plans.

B) Defined contribution pension plans.

C) Defined benefit and defined contribution plans.

D) None of these answer choices are correct.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined benefit

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

25) Which of the following statements typifies defined contribution plans?

A) Investment risk is borne by the corporation sponsoring the plan.

B) The plans are more complex than defined benefit plans.

C) Present value factors are used to determine the annual contributions to the plan.

D) The employer's obligation is satisfied by making the periodic contribution to the plan.

Difficulty: 2 Medium

Topic: Nature of pension plans‒Defined contribution

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

26) Defined contribution pension plans that link the amount of contributions to company performance are often called:

A) Incentive savings plans.

B) Thrift plans.

C) Savings plans.

D) None of these is correct.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined contribution

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

27) 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.

Difficulty: 1 Easy

Topic: Nature of pension plans‒Defined contribution

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

28) Which of the following is not a way of measuring the pension obligation?

A) Accumulated benefit obligation.

B) Vested benefit obligation.

C) Retiree benefit obligation.

D) Projected benefit obligation.

Difficulty: 1 Easy

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

29) 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.

Difficulty: 1 Easy

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

30) ERISA made major changes in the requirements for pension plan:

A) Vesting.

B) Reporting.

C) Taxing.

D) Investing.

Difficulty: 1 Easy

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

31) Compared to the ABO, the PBO usually is:

A) Less material.

B) Less representationally faithful.

C) Less relevant.

D) Less reliable.

Difficulty: 1 Easy

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Evaluate

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

32) Compared to the ABO, the PBO usually is:

A) Larger.

B) More reliable.

C) Less relevant.

D) More material.

Difficulty: 1 Easy

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Evaluate

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

33) 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.

Difficulty: 2 Medium

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

34) 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 projected benefit obligation?

A) III only.

B) I, II.

C) I, II, III.

D) II only.

Difficulty: 2 Medium

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

35) 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 vested benefit obligation?

A) I & II.

B) I, II, III.

C) II only.

D) I only.

Difficulty: 2 Medium

Topic: Pension obligation‒ABO‒Vested‒PBO

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

36) 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.

Difficulty: 1 Easy

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

37) 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.

Difficulty: 2 Medium

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

38) Payment of retirement benefits:

A) Increases the PBO.

B) Increases the ABO.

C) Reduces the GBO.

D) Reduces the PBO.

Difficulty: 1 Easy

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

39) Pearsall Company's defined benefit pension plan had a PBO of $265,000 on January 1, 2021. During 2021, pension benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service cost for 2021 was $80,000. Plan assets (fair value) increased during the year by $45,000. The amount of the PBO at December 31, 2021, was:

A) $225,000.

B) $305,000.

C) $331,500.

D) None of these answer choices are correct.

Difficulty: 2 Medium

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

40) Mars Inc. 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, $7,200. The discount rate applied by the actuary was 8%. What was the beginning PBO?

A) $90,000.

B) $100,000.

C) $107,200.

D) $112,000.

Difficulty: 3 Hard

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

41) 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.

Difficulty: 3 Hard

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

42) The following information pertains to Havana Corporation's defined benefit pension plan:

At the end of 2021, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO.

What is the 2021 service cost for Havana's plan?

A) $276 thousand.

B) $528 thousand.

C) $648 thousand.

D) Cannot be determined from the given information.

Difficulty: 3 Hard

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

43) The following information pertains to Havana Corporation's defined benefit pension plan:

At the end of 2021, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO.

What is Havana's 2021 actual return on plan assets? 

A) $504 thousand.

B) $618 thousand.

C) $1,128 thousand.

D) None of these are correct.

Difficulty: 3 Hard

Topic: Pension plan assets

Learning Objective: 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

44) The following information pertains to Havana Corporation's defined benefit pension plan:

At the end of 2021, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO.

What is Havana's 2021 gain or loss on plan assets?

A) $115.2 thousand.

B) $160.8 thousand.

C) $276 thousand.

D) None of these are correct.

Difficulty: 3 Hard

Topic: Pension expense‒Return on plan assets

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

45) The following information pertains to Havana Corporation's defined benefit pension plan:

At the end of 2021, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO.

What is the 2021 pension expense for Havana's plan?

A) $594 thousand.

B) $606 thousand.

C) $678 thousand.

D) None of these are correct.

Difficulty: 3 Hard

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

46) The projected benefit obligation:

A) contains periodic service cost, accrued interest, revised estimates, plan amendments, and the payment of benefits.

B) is the pension benefit obligation that is not contingent upon an employee's continuing service.

C) is the discounted present value of retirement benefits calculated by applying the pension formula with no attempt to forecast what salaries will be when the formula actually is applied.

D) is the present value of retirement benefits calculated by applying the pension formula in which the actuary includes projected salaries in the pension formula.

Difficulty: 2 Medium

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

47) The balance of the plan assets can change due to:

A) periodic service cost, accrued interest, revised estimates, plan amendments, and the payment of benefits.

B) investment returns, employer contributions, and the payment of benefits.

C) periodic service cost, accrued interest, revised estimates, employer contributions, and the payment of benefits.

D) periodic service cost, employer contributions, and the payment of benefits.

Difficulty: 2 Medium

Topic: Pension plan assets

Learning Objective: 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

48) 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.

Difficulty: 2 Medium

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

49) An overfunded 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.

Difficulty: 2 Medium

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

50) Data for 2021 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 2021 by: 

A) $30,000.

B) $60,000.

C) $20,000.

D) $40,000.

Difficulty: 1 Easy

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

51) Which of the following is a correct statement concerning the reporting of the pension plan on the face of the employer's balance sheet?

A) Only the plan assets are separately reported.

B) Only the PBO is separately reported.

C) Both the PBO and the plan assets are separately reported.

D) Neither the PBO nor the plan assets is separately reported.

Difficulty: 1 Easy

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

52) Messier Company has a defined benefit pension plan. Management adopted a policy of not reporting either the balance of the projected benefit obligation or the balance of plan assets separately in the balance sheet. Which of the following is an accurate statement regarding the company's policy?

A) The policy is inappropriate because without reporting those two amounts, investors have incomplete information about the company's assets and liabilities.

B) The policy is appropriate because GAAP requires companies to report the net of the two amounts in the balance sheet rather than reporting separate amounts for each.

C) The policy is appropriate because information regarding the projected benefit obligation and the balance of plan assets need only be disclosed in footnotes to the financial statements.

D) This approach is appropriate because only companies with defined benefit pension plans have projected benefit obligations and plan assets so comparisons with financial statements of companies with defined contribution plans would be misleading.

Difficulty: 2 Medium

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

53) On January 1, 2021, Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2021 and 2022 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2021. 

What pension liability should Gillock report in its balance sheet for the year ended December 31, 2022?

A) $361,440

B)  $393,440

C) $421,440

D) $481,440

Difficulty: 3 Hard

Topic: Funded status of the pension plan

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

54) On January 1, 2021, Gillock Climbing Academy instituted a defined benefit pension plan for its employees. The annual service cost for each year of 2021 and 2022 was $600,000. The interest rate used to determine the projected benefit obligation is 10%. Both the actual and the expected return on plan assets are 8% for both years. Gillock funded the plan in the amount of $400,000 each January 1, beginning on January 1, 2021. 

What amount of pension expense should Gillock report in its income statement for the year ended December 31, 2022?

A) $593,440.

B) $600,000.

C) $628,000.

D) $726,560.

Difficulty: 3 Hard

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

55) Interest cost is calculated by multiplying the:

A) ABO by the expected return on the plan assets.

B) ABO by the discount rate.

C) PBO by the expected return on plan assets.

D) PBO by the discount rate.

Difficulty: 1 Easy

Topic: Pension expense‒Service and interest cost

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

56) Service cost with regard to pension pl

Difficulty: 2 Medium

Topic: Pension expense‒Service and interest cost

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

57) The three components of pension expense that are present most often are:

A) Service cost, prior service cost, and gain on plan assets.

B) Service cost, interest cost, and gain from revisions in pension liability.

C) Service cost, contribution cost, and prior service cost.

D) Service cost, interest cost, and expected return on plan assets.

Difficulty: 1 Easy

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

58) 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.

Difficulty: 1 Easy

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

59) Which of the following is true?

A) A projected benefits approach is used to determine the periodic pension expense.

B) An accumulated benefits approach is used to determine the periodic pension expense.

C) A vested benefits approach is used to determine the periodic pension expense.

D) The pension expense is unrelated to the pension obligation.

Difficulty: 1 Easy

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

60) The component of pension expense that results from amending a pension plan to give recognition to previous service of currently enrolled employees is the amortization of:

A) Prior service cost.

B) Amendment cost.

C) Retiree service cost.

D) Transition cost.

Difficulty: 1 Easy

Topic: Pension expense‒Prior service cost

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

61) Amortizing prior service cost for pension plans will:

A) Decrease assets.

B) Increase liabilities.

C) Increase shareholders' equity.

D) Decrease retained earnings.

Difficulty: 3 Hard

Topic: Pension expense‒Prior service cost

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

62) When accounting for pensions, delayed recognition of gains and losses in earnings achieves:

A) Income averaging.

B) Expense averaging.

C) Income optimization.

D) Income smoothing.

Difficulty: 1 Easy

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

63) A net gain or loss affects the pension expense only if it exceeds an amount equal to what percentage of the PBO or plan assets, whichever is higher?

A) 5%.

B) 10%.

C) 15%.

D) 20%.

Difficulty: 1 Easy

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

64) An employer reports a pension loss in Other comprehensive income when:

A) a change in an assumption causes the projected benefit obligation to be less than expected.

B) the return on plan assets is lower than expected.

C) retiree benefits paid out are more than expected.

D) the accumulated benefit obligation is less than expected.

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand; Apply

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

65) Pension gains related to plan assets occur when:

A) The return on plan assets is higher than expected.

B) The vested benefit obligation is less than expected.

C) Retiree benefits paid out are less than expected.

D) The accumulated benefit obligation is more than expected.

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

66) The amortization of a net gain has what effect on pension expense?

A) Decreases it.

B) Has no effect on it.

C) Increases it (but only by the amount over 10% of the PBO).

D) Increases it (regardless of the amount).

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

67) 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. What is the amount of amortization to pension expense for the year?

A) $500,000.

B) $2,500,000.

C) $1,500,000.

D) $3,000,000.

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

68) Assume that at the beginning of the current year, Hankins Company has a net gain–AOCI of $60,000,000. At the same time, assume the PBO and the plan assets are $300,000,000 and $450,000,000, respectively. The average remaining service period for the employees expected to receive benefits is 10 years. What is the amount of amortization to pension expense for the year?

A) $6,000,000.

B) $15,000,000.

C) $1,500,000.

D) $7,500,000.

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

69) Pension expense is decreased by:

A) Amortization of prior service cost.

B) Amortization of net gain.

C) Benefits paid to retired employees.

D) Prior service cost.

Difficulty: 1 Easy

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

70) In a defined benefit pension plan, gains and losses (either from changing assumptions regarding the PBO or from the return on assets being higher or lower than expected) are:

A) deferred and not immediately included in pension expense and net income

B) included in pension expense and net income

C) included in pension expense but not net income

D) included in net income but not in pension expense

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

71) Which of the following is not a potential component of pension expense?

A) Return on plan assets.

B) Prior service cost.

C) Retiree benefits paid.

D) Gains and losses.

Difficulty: 1 Easy

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

72) Bissell Company received the following reports of its defined benefit pension plan for the current calendar year:

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.

Difficulty: 2 Medium

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

73) Babcock Company received the following reports of its defined benefit pension plan for the current calendar year:

The long-term expected rate of return on plan assets is 8%. Assuming no other data are relevant, what is the pension expense for the year?

A) $360,000.

B) $424,000.

C) $374,000.

D) $384,000.

Difficulty: 2 Medium

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

74) The following information is related to the defined benefit pension plan of Dreamworld Company for the year:

Assuming no other relevant data exist, what is the pension expense for the year?

A) $190,000.

B) $92,400.

C) $60,000.

D) $170,000.

Difficulty: 3 Hard

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

75) The following information is related to the defined benefit pension plan of Melissa Larson Company for the year:

Assuming no other relevant data exist, what is the pension expense for the year?

A) $90,000.

B) $230,600.

C) $121,400.

D) $154,000.

Difficulty: 3 Hard

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

76) Harvey Hotels has provided a defined benefit pension plan for its employees for several years. At the end of the most recent year, the following information was available with regard to the plan: service cost: $6.2 million, expected return on plan assets: $1.2 million, actual return on plan assets: $1 million, interest cost: $1.4 million, payments to retired employees: $2 million, and amortization of prior service cost (created when the pension plan was amended causing a drop in the projected benefit obligation): $1.1 million. What amount should Harvey Hotels report as pension expense in its income statement for the year?

A) $1.4 million

B) $7.5 million

C) $7.7 million

D) $8.7 million

Difficulty: 2 Medium

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

77) Gains and losses can occur with pension plans when:

A) Either the PBO or the return on plan assets turns out to be different than expected.

B) Either the ABO or the return on plan assets turns out to be different than expected.

C) Either the PBO, the ABO, or the return on plan assets turns out to be different than expected.

D) Either the PBO or the ABO turns out to be different than expected.

Difficulty: 2 Medium

Topic: Recording gains and losses

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

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

A) Increase assets.

B) Increase liabilities.

C) Decrease shareholders' equity.

D) Increase shareholders' equity.

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain; Recording gains and losses

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.; 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

79) At December 31, 2020, 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 2021 increased her estimate of future salary levels. Mongo's entry to record the effect of this change will include:

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.

Difficulty: 3 Hard

Topic: Recording gains and losses

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

80) JL Health Services reported a net loss–AOCI in last year's balance sheet. This year, the company revised its estimate of future salary levels causing its PBO estimate to decline by $24. Also, the $48 million actual return on plan assets was less than the $54 million expected return. As a result:

A) The statement of comprehensive income will report a $6 million gain and a $24 million loss.

B) The net pension liability will increase by $18 million.

C) Accumulated other comprehensive income will increase by $18 million.

D) The net pension liability will decrease by $24 million.

Difficulty: 3 Hard

Topic: Recording gains and losses

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

81) Amortizing a net loss for pensions will:

A) Increase retained earnings and increase accumulated other comprehensive income.

B) Decrease retained earnings and decrease accumulated other comprehensive income.

C) Increase retained earnings and decrease accumulated other comprehensive income.

D) Decrease retained earnings and increase accumulated other comprehensive income.

Difficulty: 2 Medium

Topic: Recording gains and losses

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

82) Recording pension expense would usually:

A) Increase the PBO.

B) Increase current assets.

C) Increase the prior service cost–AOCI.

D) Increase the net loss–AOCI.

Difficulty: 1 Easy

Topic: Recording pension expense

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

83) In a defined benefit pension plan, the journal entry to record pension expense will not include:

A) a debit to service cost.

B) a credit to projected benefit obligation.

C) a credit to amortization of prior service cost.

D) a debit to plan assets.

Difficulty: 2 Medium

Topic: Recording pension expense

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

84) Scott Hobson Enterprises has a defined benefit pension plan. At the end of the reporting year, the following data were available: beginning PBO, $75,000; service cost, $14,000; interest cost, $6,000; benefits paid for the year, $9,000; ending PBO, $89,000; and the expected return on plan assets, $10,000. There were no other pension-related costs. The journal entry to record the annual pension costs will include a debit to pension expense for:

A) $20,000.

B) $15,000.

C) $12,000.

D) $10,000.

Difficulty: 3 Hard

Topic: Pension expense‒Determine expense; Recording pension expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.; 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

85) Cassy Budd Company has a defined benefit pension plan. At the end of the reporting year, the following data were available: beginning PBO, $75,000; service cost, $18,000; interest cost, $5,000; benefits paid for the year, $9,000; ending PBO, $89,000; the expected return on plan assets, $10,000; and cash deposited with pension trustee, $17,000. There were no other pension-related costs. The journal entry to record the annual pension costs will include a credit to the PBO for:

A) $13,000.

B) $17,000.

C) $18,000.

D) $23,000.

Difficulty: 3 Hard

Topic: Recording pension expense

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

86) In a defined benefit pension plan, the journal entry to record benefits paid to retired employees will include:

A) a debit to projected benefit obligation

B) a debit to plan assets

C) a credit to retiree benefits

D) a credit to cash

Difficulty: 2 Medium

Topic: Recording funding and payments of plan assets

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.; 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

87) In a defined benefit pension plan, the journal entry to record the employer's annual cash contribution to plan assets:

A) reduces the employer's obligation to pay benefits

B) includes a credit to plan assets

C) might reduce next period's pension expense

D) includes a debit to cash

Difficulty: 3 Hard

Topic: Recording funding and payments of plan assets

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

88) Persoff Company has a defined benefit pension plan. Management adopted a policy of reporting the service cost component of pension expense in the income statement as part of the total compensation costs arising from services rendered by the employees during the period and separately reporting the net amount of the non-service cost components of pension expense on a separate line below income from operations. Which of the following is an accurate statement regarding the company's policy?

A) This presentation reflects the nature of service cost being different from that of the other elements of pension cost.

B) The policy is inappropriate because the other (non-service cost) components of pension expense should each be reported on a separate line within the income statement.

C) The policy is inappropriate because all components of pension expense should be combined and reported as a single pension expense.

D) This approach is inappropriate because the net amount of the non-service cost components of pension expense should be reported as other comprehensive income in the statement of comprehensive income.

Difficulty: 2 Medium

Topic: Reporting issues‒OCI-AOCI-Income

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Understand

AACSB: Reflective Thinking; Analytical Thinking

AICPA/Accessibility: / Keyboard Navigation

89) Accumulated other comprehensive income:

A) Is a liability.

B) Might include prior service cost.

C) Includes accumulated pension expense.

D) Is reported in the income statement.

Difficulty: 1 Easy

Topic: Reporting issues‒OCI-AOCI-Income

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

90) A statement of comprehensive income does not include:

A) Net income.

B) Losses from the return on assets exceeding expectations.

C) Losses from changes in estimates regarding the PBO.

D) Prior service cost.

Difficulty: 2 Medium

Topic: Reporting issues‒OCI-AOCI-Income

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

91) Amortizing prior service cost for pension plans will:

A) Increase retained earnings and increase accumulated other comprehensive income.

B) Decrease retained earnings and decrease accumulated other comprehensive income.

C) Increase retained earnings and decrease accumulated other comprehensive income.

D) Decrease retained earnings and increase accumulated other comprehensive income.

Difficulty: 2 Medium

Topic: Reporting issues‒OCI-AOCI-Income

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

92) A statement of comprehensive income does not include:

A) Gains from the return on pension assets exceeding expectations.

B) Gains and losses on unsold held-to-maturity securities.

C) Losses from the return on pension assets falling short of expectations.

D) Prior service cost.

Difficulty: 2 Medium

Topic: Reporting issues‒OCI-AOCI-Income

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

93) An employer reports the components of pension expense outside the subtotal of income from operations with the exception of:

A) service cost.

B) interest cost.

C) actual return on plan assets.

D) expected return on plan assets.

Difficulty: 1 Easy

Topic: Reporting issues‒OCI-AOCI-Income

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

94) In the income statement, companies report the service cost component of pension expense:

A) as part of total compensation costs.

B) as part of total service cost that includes past service cost.

C) as part of non-operating income.

D) separate from the other (non-service cost) components and outside the subtotal of income from operations.

Difficulty: 1 Easy

Topic: Reporting issues‒OCI-AOCI-Income

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

95) The following incomplete (columns have missing amounts) pension spreadsheet is for the current year for First Republic Corporation (FRC).

What was the net pension asset/liability reported in the balance sheet at the end of the year?

A) Net pension asset of $50 million.

B) Net pension asset of $24 million.

C) Net pension liability of $50 million.

D) Net pension liability of $24 million.

Difficulty: 3 Hard

Topic: Pension spreadsheet

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.; 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

96) The following incomplete (columns have missing amounts) pension spreadsheet is for the current year for First Republic Corporation (FRC).

What was FRC's pension expense for the year? 

A) $44 million.

B) $47 million.

C) $49 million.

D) $107 million.

Difficulty: 3 Hard

Topic: Pension spreadsheet

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.; 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

97) The following incomplete (columns have missing amounts) pension spreadsheet is for the current year for First Republic Corporation (FRC).

What was the actuary's interest (discount) rate?

A) 7%.

B) 8%.

C) 9%.

D) 10%.

Difficulty: 1 Easy

Topic: Pension spreadsheet

Learning Objective: 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

98) The following refers to the pension spreadsheet (columns have missing amounts) for the current year for Pancho Villa Enterprises (PVE).

What was PVE's pension expense for the year?

A) $250 million.

B) $50 million.

C) $68 million.

D) $62 million.

Difficulty: 3 Hard

Topic: Pension spreadsheet

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.; 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

99) The following refers to the pension spreadsheet (columns have missing amounts) for the current year for Pancho Villa Enterprises (PVE).

What was the PBO at the beginning of the year?

A) $160 million.

B) $400 million.

C) $500 million.

D) $610 million.

Difficulty: 1 Easy

Topic: Pension spreadsheet

Learning Objective: 17-05 Describe the funded status of pension plans and how that amount is reported.; 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

100) The following refers to the pension spreadsheet (columns have missing amounts) for the current year for Pancho Villa Enterprises (PVE).

What were the retiree benefits paid?

A) $45 million.

B) $50 million.

C) $55 million.

D) $60 million.

Difficulty: 2 Medium

Topic: Pension spreadsheet

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.; 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

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

A) Service cost.

B) Expected return on plan assets.

C) Amortization of prior service cost.

D) Cash contributions to plan assets.

Difficulty: 1 Easy

Topic: Pension spreadsheet

Learning Objective: 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

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

A) Service cost.

B) Expected return on plan assets.

C) Amortization of net gain–AOCI.

D) Prior service cost.

Difficulty: 2 Medium

Topic: Pension spreadsheet

Learning Objective: 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

103) The following incomplete (columns have missing amounts) pension spreadsheet is for Old Tucson Corporation (OTC).

What was the prior service cost at the beginning of the year?

A) $48 million.

B) $54 million.

C) $56 million.

D) $60 million.

Difficulty: 1 Easy

Topic: Pension spreadsheet

Learning Objective: 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

104) The following incomplete (columns have missing amounts) pension spreadsheet is for Old Tucson Corporation (OTC).

What is OTC's pension expense for the year?

A) $78 million.

B) $72 million.

C) $66 million.

D) $18 million.

Difficulty: 3 Hard

Topic: Pension spreadsheet

Learning Objective: 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

105) The following incomplete (columns have missing amounts) pension spreadsheet is for Old Tucson Corporation (OTC).

What was the balance of the net pension asset/liability reported in the balance sheet at the end of the previous year?

A) Net pension asset of $250 million.

B) Net pension asset of $442 million.

C) Net pension liability of $250 million.

D) Net pension liability of $442 million.

Difficulty: 3 Hard

Topic: Pension spreadsheet

Learning Objective: 17-08 Understand the interrelationships among the elements that constitute a defined benefit pension plan.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

106) According to generally accepted accounting principles, accounting for postretirement benefits other than pensions must adhere to the:

A) Accrual basis of accounting.

B) Cash basis of accounting.

C) Modified accrual basis.

D) Modified cash basis.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Characteristics

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

107) Eligibility for postretirement health care benefits usually is based on the employee's:

A) Job title.

B) Number of years in the profession.

C) Number of years in the current position.

D) Age and/or years of service.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Healthcare

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Industry / Keyboard Navigation

108) Eligibility requirements and the nature of benefits for postretirement health care plans usually are specified in the:

A) Written plan.

B) Informal plan.

C) Substantive plan.

D) Severance plan.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Healthcare

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

109) Which of the following is not included among the assumptions needed to estimate postretirement health care benefits?

A) Employee turnover.

B) Expected retirement age of plan participants.

C) Life expectancy of plan participants.

D) Return on plan assets.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Healthcare

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Industry / Keyboard Navigation

110) The estimated medical costs are expected to be $7,500 during an employee's retirement. The retiree is expected to pay 30% of the cost and Medicare is expected to pay 50% of the cost. What is the company's estimated net cost of benefits?

A) $5,250.

B) $7,500.

C) $1,500.

D) $3,750.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Healthcare

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

111) Accounting for postretirement health care benefits is similar, in most respects, to accounting for:

A) Payroll taxes.

B) Health insurance costs for current employees.

C) Pension benefits.

D) Sick pay and vacation pay.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Healthcare; Other postretirement plans v pension plans

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

112) Which one of the following assumptions is needed to estimate both postretirement health care benefits and pension benefits?

A) Per capita claims cost.

B) Expected cost trend rate.

C) Benefits provided by other governmental or private plans.

D) Employee turnover.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Healthcare; Other postretirement plans v pension plans

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Industry / Keyboard Navigation

113) With pensions, service cost reflects additional benefits employees earn from an additional year's service. The service cost for retiree health care plans is:

A) An allocation to the current year of a portion of an estimated fixed total cost.

B) An allocation to the current year of a portion of an existing liability.

C) An amount earned by a defined benefit formula.

D) The amount paid to retired employees.

Difficulty: 2 Medium

Topic: Other postretirement plans‒EPBO and APBO; Other postretirement plans v pension plans

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Industry / Keyboard Navigation

114) Pension benefits and postretirement health benefits typically are similar in their:

A) Application of present value concepts.

B) Vesting policies.

C) Coverage for eligible dependents.

D) Relationship between cost of coverage and length of service.

Difficulty: 1 Easy

Topic: Other postretirement plans v pension plans

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

115) Blue Company has a plan whereby it pays for health care insurance for all employees after they retire. Red Company has a defined benefit pension plan for its employees. With respect to these plans, which of the following statements is not true?

A) Red Company's obligation tends to increase in a steadier pattern than that of Blue Company.

B) Red Company's accounting for its obligation is similar to that of Blue Company.

C) Red Company's obligation is less difficult to estimate than that of Blue Company.

D) Red Company is less likely to fund its obligation than is Blue Company.

Difficulty: 2 Medium

Topic: Other postretirement plans v pension plans

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

116) A company's total obligation for postretirement benefits is measured by the:

A) APBO.

B) HMOP.

C) HOBO.

D) EPBO.

Difficulty: 1 Easy

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

117) The postretirement benefit obligation is the:

A) Future value of the estimated benefits during retirement.

B) Present value of the estimated benefits during retirement.

C) Fair value of the estimated benefits during retirement.

D) Actual value of estimated benefits during retirement.

Difficulty: 1 Easy

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

118) The APBO increases each year by the:

A) Interest accrued on the APBO and the portion of the EPBO attributed to that year.

B) Interest accrued on the EPBO and the portion of the EPBO attributed to that year.

C) Interest accrued on the APBO and the portion of the APBO attributed to that year.

D) Interest accrued on the EPBO and the portion of the APBO attributed to that year.

Difficulty: 2 Medium

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

119) A company's postretirement health care benefit plan had an APBO of $265,000 on January 1, 2021. During 2021, retiree benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service cost for 2021 was $80,000. Plan assets (fair value) increased during the year by $45,000. The amount of the APBO at December 31, 2021, was:

A) $225,000.

B) $305,000.

C) $331,500.

D) $371,500.

Difficulty: 2 Medium

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

120) Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years' reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement.

Ralph Young was hired at the beginning of 1985 by Oregon after turning age 22 and is expected to retire at the end of 2023 (age 60). The discount rate is 4%. The plan is unfunded.

The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839.

The PV of $1 where n = 2 and i = 4% is 0.92456.

What is the present value of Ralph's net benefits as of his expected retirement date, rounded to the nearest dollar?

A) $166,580.

B) $222,368.

C) $300,000.

D) None of these are correct.

Difficulty: 2 Medium

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

121) Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years' reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement.

Ralph Young was hired at the beginning of 1985 by Oregon after turning age 22 and is expected to retire at the end of 2023 (age 60). The discount rate is 4%. The plan is unfunded.

The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839.

The PV of $1 where n = 2 and i = 4% is 0.92456.

With respect to Ralph, what is Oregon's expected postretirement benefit obligation (EPBO) at the end of 2021, rounded to the nearest dollar?

A) $137,045.

B) $205,593.

C) $246,810.

D) $768,000.

Difficulty: 3 Hard

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

122) Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years' reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement.

Ralph Young was hired at the beginning of 1985 by Oregon after turning age 22 and is expected to retire at the end of 2023 (age 60). The discount rate is 4%. The plan is unfunded.

The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839.

The PV of $1 where n = 2 and i = 4% is 0.92456.

With respect to Ralph, what is Oregon's accumulated postretirement benefit obligation (APBO) at the end of 2021, rounded to the nearest dollar?

A) $130,544.

B) $205,593.

C) $195,050.

D) None of these answer choices are correct

Difficulty: 3 Hard

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

123) Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years' reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement.

Ralph Young was hired at the beginning of 1985 by Oregon after turning age 22 and is expected to retire at the end of 2023 (age 60). The discount rate is 4%. The plan is unfunded.

The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839.

The PV of $1 where n = 2 and i = 4% is 0.92456.

With respect to Ralph, what is the service cost to be included in Oregon's 2021 postretirement benefit expense, rounded to the nearest dollar?

A) $3,544.

B) $6,365.

C) $20,000.

D) $5,272.

Difficulty: 3 Hard

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

124) Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years' reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement.

Ralph Young was hired at the beginning of 1985 by Oregon after turning age 22 and is expected to retire at the end of 2023 (age 60). The discount rate is 4%. The plan is unfunded.

The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839.

The PV of $1 where n = 2 and i = 4% is 0.92456.

With respect to Ralph, what is the interest cost to be included in Oregon's 2022 postretirement benefit expense, rounded to the nearest dollar?

A) $7,802.

B) $7,877.

C) $8,766.

D) None of these answer choices are correct.

Difficulty: 3 Hard

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

125) The EPBO for a particular employee on January 1, 2021, was $30,000. The APBO at the beginning of the year was $6,000. The appropriate discount rate for this postretirement plan is 5%. The employee is expected to serve the company for a total of 25 years with 5 of those years already served as of January 1, 2021. What is the APBO at December 31, 2021?

A) $6,300.

B) $7,200.

C) $7,500.

D) $7,560.

Difficulty: 3 Hard

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

126) The EPBO for a particular employee on January 1, 2021, was $150,000. The APBO at the beginning of the year was $30,000. The appropriate discount rate for this postretirement plan is 5%. The employee is expected to serve the company for a total of 25 years with 5 of those years already served as of January 1, 2021. What is the APBO at December 31, 2021?

A) $37,800.

B) $42,800.

C) $31,500.

D) $30,000.

Difficulty: 3 Hard

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

127) The net postretirement benefit liability (APBO minus plan assets) is increased by:

A) Service cost.

B) Expected return on plan assets.

C) Amortization of net gain.

D) Cash contributions to plan assets.

Difficulty: 1 Easy

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

128) The following data are for Guava Company's retiree health care plan for the current calendar year.

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

A) $3,600.

B) $720.

C) $768.

D) $4,000.

Difficulty: 2 Medium

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

129) The following data are for Guava Company's retiree health care plan for the current calendar year.

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

A) $3,000.

B) $3,180.

C) $3,200.

D) $4,000.

Difficulty: 2 Medium

Topic: Other postretirement plans‒EPBO and APBO

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

130) 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:

A) Restitution.

B) Retribution.

C) Attribution.

D) Assignation.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Attribution

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

131) The attribution period for postretirement benefits spans each year of service from the employee's date of hire to the employee's date of:

A) Full eligibility.

B) Death.

C) Retirement.

D) Termination.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Attribution

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

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

A) The first five years of service.

B) The year of hire.

C) The employee probation period.

D) The years of service beyond the full eligibility date.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Attribution

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

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

A) An equal fraction of the EPBO to each year the employee is on the company payroll.

B) An equal fraction of the APBO to each year the employee is on the company payroll.

C) An equal fraction of the APBO to each year of service from the employee's hire date to the employee's full eligibility date.

D) An equal fraction of the EPBO to each year of service from the employee's hire date to the employee's full eligibility date.

Difficulty: 2 Medium

Topic: Other postretirement plans‒Attribution

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

134) Assume the actuary estimates the net cost of providing health care benefits to a particular employee during his retirement years to have a present value of $60,000. If the benefits relate to an estimated 25 years of service and five of those years have been completed:

A) The EPBO would be $12,000.

B) The EPBO would be $8,400.

C) The APBO would be $8,400.

D) The APBO would be $12,000.

Difficulty: 2 Medium

Topic: Other postretirement plans‒Attribution

Learning Objective: 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

135) If no estimates are changed and there is no net loss or gain or prior service cost, which of the following amounts related to an unfunded postretirement benefit plan will not increase with each additional year of service before the full eligibility date?

A) Other comprehensive income.

B) Postretirement benefit expense.

C) APBO.

D) EPBO.

Difficulty: 2 Medium

Topic: Other postretirement plans‒Accounting

Learning Objective: 17-11 Determine the components of postretirement benefit expense.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

136) The amount of cash paid annually for unfunded postretirement health benefit plans, assuming they are not independently insured, usually is equal to:

A) The amount required by the actuarial formula.

B) The present value of future benefits.

C) The amount necessary to cover future benefits.

D) The amount necessary to pay the current year's health care cost.

Difficulty: 2 Medium

Topic: Other postretirement plans‒Accounting

Learning Objective: 17-11 Determine the components of postretirement benefit expense.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

137) At December 31, 2020, Mallory, Inc. reported in its balance sheet a net loss of $12 million related to its postretirement benefit plan. The actuary for Mallory at the end of 2021 increased her estimate of future health care costs. Mallory's entry to record the effect of this change will include:

A) A debit to Loss-OCI and a credit to APBO.

B) A debit to APBO and a credit to Loss-OCI.

C) A debit to Postretirement benefit expense and a credit to APBO.

D) A debit to Postretirement benefit expense and a credit to Loss-OCI.

Difficulty: 2 Medium

Topic: Other postretirement plans‒Accounting

Learning Objective: 17-11 Determine the components of postretirement benefit expense.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

138) In a postretirement health care plan, prior service cost is attributed to the service of active employees from the date of the amendment to:

A) The partial eligibility date.

B) The retirement date.

C) The full eligibility date.

D) The date of death.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Accounting

Learning Objective: 17-11 Determine the components of postretirement benefit expense.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement; BB Legal / Keyboard Navigation

139) Recording the expense for postretirement benefits will not:

A) Increase the APBO.

B) Increase the postretirement benefit assets.

C) Decrease the prior service cost.

D) Increase the net loss–AOCI.

Difficulty: 2 Medium

Topic: Other postretirement plans‒Accounting

Learning Objective: 17-11 Determine the components of postretirement benefit expense.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

140) The following data are for Guava Company's retiree health care plan for the current calendar year.

What is the correct entry to record postretirement benefit expense for the current year?

A)

B)

C)

D)

Difficulty: 2 Medium

Topic: Other postretirement plans‒Accounting

Learning Objective: 17-11 Determine the components of postretirement benefit expense.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

141) Generic Company sponsors an unfunded postretirement plan providing healthcare benefits. The following information relates to the current year's activity of Generic's postretirement benefit plan:

The interest cost for the year is:

A) $20 million

B) $40 million

C) $30 million

D) $50 million

Difficulty: 2 Medium

Topic: Other postretirement plans‒Accounting

Learning Objective: 17-11 Determine the components of postretirement benefit expense.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

142) Amortizing a net gain for pensions and other postretirement benefit plans will:

A) Increase retained earnings and increase accumulated other comprehensive income.

B) Decrease retained earnings and decrease accumulated other comprehensive income.

C) Increase retained earnings and decrease accumulated other comprehensive income.

D) Decrease retained earnings and increase accumulated other comprehensive income.

Difficulty: 2 Medium

Topic: Other postretirement plans‒Accounting; Recording gains and losses

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.; 17-11 Determine the components of postretirement benefit expense.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

143) Amortizing prior service cost for pensions and other postretirement benefit plans will:

A) Decrease retained earnings.

B) Increase assets.

C) Decrease assets.

D) Decrease shareholders' equity.

Difficulty: 1 Easy

Topic: Other postretirement plans‒Accounting; Recording gains and losses

Learning Objective: 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.; 17-11 Determine the components of postretirement benefit expense.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

144) Under IFRS, components of other comprehensive income:

A) Can be reported as part of a single statement of comprehensive income.

B) Are not permitted to be reported.

C) Must be reported in a separate statement of comprehensive income.

D) Can be reported as part of a statement of shareholders' equity.

Difficulty: 2 Medium

Topic: IFRS‒Comprehensive income

Learning Objective: 17-12 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for postretirement benefit plans.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

145) Revenue and expense items and components of other comprehensive income can be reported in a single statement of comprehensive income using:

A) U.S. GAAP.

B) IFRS.

C) Both U.S. GAAP and IFRS.

D) Neither U.S. GAAP nor IFRS.

Difficulty: 2 Medium

Topic: IFRS‒Comprehensive income

Learning Objective: 17-12 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for postretirement benefit plans.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

146) Revenue and expense items and components of other comprehensive income can be reported in the statement of shareholders' equity using:

A) U.S. GAAP.

B) IFRS.

C) Both U.S. GAAP and IFRS.

D) Neither U.S. GAAP nor IFRS.

Difficulty: 2 Medium

Topic: IFRS‒Comprehensive income

Learning Objective: 17-12 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for postretirement benefit plans.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

147) Persoff Industries International has a defined benefit pension plan. The company revised its estimate of future salary levels causing its defined benefit obligation to increase by $16 million. Also, Persoff's $25 million actual return on plan assets exceeded the 5% high-grade corporate bond rate times the $440 million plan assets. Persoff prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). The company will:

A) Record a $3 million decrease in its plan assets.

B) Record a $16 million gain—OCI.

C) Change an amount in the equity section of the balance sheet to be subsequently amortized to pension expense.

D) Change an amount in the equity section of the balance sheet that will never be amortized to pension expense.

Difficulty: 3 Hard

Topic: IFRS‒Pension gains and losses

Learning Objective: 17-12 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for postretirement benefit plans.

Bloom's: Analyze

AACSB: Analytical Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

148) Actuarial gains and losses are reported as OCI as they occur using:

A) U.S. GAAP.

B) IFRS.

C) Both U.S. GAAP and IFRS.

D) Neither U.S. GAAP nor IFRS.

Difficulty: 2 Medium

Topic: IFRS‒Pension gains and losses

Learning Objective: 17-12 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for postretirement benefit plans.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

149) Prior service cost is included among OCI items in the statement of comprehensive income and thus subsequently becomes part of AOCI where it is amortized over the average remaining service period using

A) U.S. GAAP.

B) IFRS.

C) Both U.S. GAAP and IFRS.

D) Neither U.S. GAAP nor IFRS.

Difficulty: 2 Medium

Topic: IFRS‒Prior service cost

Learning Objective: 17-12 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for postretirement benefit plans.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

150) Prior service cost is expensed immediately using:

A) U.S. GAAP.

B) IFRS.

C) Both U.S. GAAP and IFRS.

D) Neither U.S. GAAP nor IFRS.

Difficulty: 2 Medium

Topic: IFRS‒Prior service cost

Learning Objective: 17-12 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for postretirement benefit plans.; Appendix 17 - Service Method of Allocating Prior Service Cost.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

151) When the service method is used for amortizing prior service costs, the amount recognized each year is:

A) In proportion to the fraction of the total remaining service years worked during the year.

B) A constant amount or fixed amount.

C) Prior service cost divided by the average remaining service life of the active employee group.

D) Prior service cost divided by the average estimated retirement age of the currently enrolled employee group.

Difficulty: 2 Medium

Topic: Service method‒Prior service‒Appendix

Learning Objective: Appendix 17 - Service Method of Allocating Prior Service Cost.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

152) On January 1, 2020, WOW amended its defined benefit pension plan. The amount of prior service costs caused by this action was $720,000. WOW uses the service method for amortizing prior service costs. The following service years were provided by the company actuary: 2020, 20; 2021, 15; 2022, 12; 2023, 8; and 2024, 5. Twenty employees benefit from this amendment. In 2021, the amortization amount would be:

A) $12,000.

B) $180,000.

C) $144,000.

D) $300,000.

Difficulty: 3 Hard

Topic: Service method‒Prior service‒Appendix

Learning Objective: Appendix 17 - Service Method of Allocating Prior Service Cost.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

153) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term by placing the number designating that term in the space provided

Difficulty: 2 Medium

Topic: Funded status of the pension plan; Nature of pension plans-Characteristics; Pension expense-Return on plan assets; Pension obligation-Changes in the PBO

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.; 17-03 Describe the five events that might change the balance of the PBO.; 17-05 Describe the funded status of pension plans and how that amount is reported.; 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

154) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the most correct term.

Difficulty: 2 Medium

Topic: Pension expense‒Return on plan assets; Pension obligation‒Changes in the PBO; Pension plan assets

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.; 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.; 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

155) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the most correct term.

Difficulty: 2 Medium

Topic: Nature of pension plans-Characteristics; Pension expense-Service and interest cost; Pension obligation-ABO-Vested-PBO; Pension obligation-Changes in the PBO; Pension plan assets

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.; 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).; 17-03 Describe the five events that might change the balance of the PBO.; 17-05 Describe the funded status of pension plans and how that amount is reported.; 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal; FN Measurement

156) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the most correct term.

Difficulty: 2 Medium

Topic: Pension obligation‒ABO-Vested‒PBO; Pension obligation‒Changes in the PBO; Pension plan assets

Learning Objective: 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).; 17-03 Describe the five events that might change the balance of the PBO.; 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.; 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

157) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the most correct term.

Difficulty: 2 Medium

Topic: Nature of pension plans-Characteristics; Pension expense-Service and interest cost; Reporting issues―OCI—AOCI—Income

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.; 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.; 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal; FN Measurement

158) Listed below are six terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the most correct term.

Difficulty: 2 Medium

Topic: Nature of pension plans-Defined contribution; Other postretirement plans-EPBO and APBO; Pension obligation-ABO-Vested-PBO; Pension obligation-Changes in the PBO; Pension plan assets

Learning Objective: 17-01 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan.; 17-02 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation (PBO).; Describe the five events that might change the balance of the PBO.; 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.; 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Industry; FN Measurement

159) Listed below are six terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the most correct term.

Difficulty: 2 Medium

Topic: Other postretirement plans‒Healthcare; Other postretirement plans‒Attribution; Other postretirement plans‒EPBO and APBO

Learning Objective: 17-09 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions.; 17-10 Explain how the obligation for postretirement benefits is measured and how the obligation changes.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

160) On January 1 of the current reporting year, Coda Company's projected benefit obligation was $30 million. During the year, pension benefits paid by the trustee were $4 million. Service cost was $10 million. Pension plan assets earned $5 million as expected. At the end of the year, there was no net gain or loss and no prior service cost. The actuary's discount rate was 10%.

Required:

Determine the amount of the projected benefit obligation at December 31.

Difficulty: 2 Medium

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

161) Pension data for Matta Corporation include the following for the current calendar year:

Required:

Assuming no change in actuarial assumptions and estimates, determine the service cost component of pension expense for the current year.

Difficulty: 2 Medium

Topic: Pension obligation‒Changes in the PBO

Learning Objective: 17-03 Describe the five events that might change the balance of the PBO.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

162) The following information relates to Hatami Company's defined benefit pension plan during the current reporting year:

Required:

Determine the balance of pension plan assets at fair value on December 31.

Difficulty: 2 Medium

Topic: Pension plan assets

Learning Objective: 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

163) The following information relates to Schmidt Sausage Co.'s defined benefit pension plan during the current reporting year:

Required:

Determine the amount of pension plan assets at fair value on December 31.

Difficulty: 2 Medium

Topic: Pension plan assets

Learning Objective: 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

164) Pension data for Sewell Corporation include the following for the current calendar year:

Required:

Assuming cash contributions were made at the end of the year, what was the amount of those contributions?

Difficulty: 2 Medium

Topic: Pension plan assets

Learning Objective: 17-04 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

165) Pension data for Goldman Company included the following for the current calendar year:

Required:

Determine pension expense for the year.

Difficulty: 2 Medium

Topic: Pension expense‒Determine expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

166) Vrable Corporation has a defined benefit pension plan. Two alternative possibilities for pension-related data for the current calendar year are shown below:

Required:

For each independent case, calculate amortization of the net loss or gain that should be included as a component of pension expense for the current year.

Difficulty: 2 Medium

Topic: Pension expense‒Net loss or net gain

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

167) Waddle Company amended its defined benefit pension plan on January 1, 2021, 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 2021.

2. Using the straight-line method, calculate the amount of prior service cost to be amortized to pension expense in 2021.

Difficulty: 3 Hard

Topic: Service method‒Prior service‒Appendix; Service method of allocating prior service cost.

Learning Objective: Appendix 17 Service Method of Allocating Prior Service Cost.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

168) Burrito Corporation has a defined benefit pension plan. Burrito received the following information for the current calendar year:

The expected long-term return on plan assets is 10%. There were no other relevant data for the year.

Required:

1. Determine Burrito's pension expense for the year.

2. Prepare the journal entries to record the pension expense and funding for the year.

Difficulty: 2 Medium

Topic: Pension expense‒Determine expense; Recording funding and payments of plan assets; Recording pension expense

Learning Objective: 17-06 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets.; 17-07 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

169) Lasagna Corporation has a defined benefit pension plan. Lasagna received the following information for the current calendar year:

The expected long-term return on plan assets is 10%. There were no other relevant data for the year.

Required:

1. Determine Lasagna Corporation's pension expense for the year.

2. Prepare the journal entries to record the pension expense and funding for the year.