Chapter 20 - Accounting for Pensions and Postretirement Benefits

Question 1

What kinds of pension plans do companies generally design?

contributory, noncontributory, insured, qualified

Answer 1

Qualified

Question 2

A retirement plan which requires an employer to contribute a certain sum each period based on a formula is a ______ plan.

Answer 2

defined-contribution

Question 3

The pension obligation, measured on the basis of the plan formula applied to years of service to date and based on existing salary levels is called the ______.

Answer 3

Accumulated benefit obligation

Question 4

The interest on the projected benefit obligation component of pension expense reflects what?

Answer 4

The rate at which pension benefits could effectively be settled

Question 5

What are the 2 ways prior service cost can be amortized?

Answer 5

Straight-line over average remaining service life of active employees

Year-of-service method

Question 6

The _____ of pension plan assets is used to determine the corridor and calculate the return on plan assets.

Answer 6

fair value

Question 7

When the accumulated benefit obligation exceeds the fair value of pension plan assets, but pension cost is less than this excess, and unrecognized prior service cost exists, an intangible asset called ______ is created.

Answer 7

Deferred pension cost

Question 8

Who administers terminated plans and imposes liens on the employer’s assets for certain unfunded pension liabilities?

Answer 8

The pension benefit guarantee corporation

Question 9

What is the name of a pension plan in which the employer bears the entire cost?

(contributory, noncontributory, insured, qualified)

Answer 9

noncontributory plan

Question 10

In a defined-benefit plan, making the periodic contributions to a funding agency to ensure that funds are available to meet retirees’ claims is known as ____.

Answer 10

Funding

Question 11

At each balance sheet date, a company should report a pension asset or liability equal to ______.

Answer 11

The funded status relative to the PBO.

Question 12

The balance of the prepaid/accrued cost column in the pension worksheet should equal the net balance in the _____.

Answer 12

memo record

Question 13

Whenever a defined-benefit plan is amended and credit is given to employees for years of service provided before the date of amendment, what is the impact to pension expense and PBO?

Answer 13

Both are increased

Question 14

The unexpected gains or losses that result from changes in the PBO are called _____ Gains and Losses.

Answer 14

Liability

Question 15

When the balance of the Unrecognized Net Gain or Loss account exceeds 10% of the larger of the PBO or plan assets, what should be done?

Answer 15

The gain or loss should be amortized

Question 16

Which of the following is not a component of pension expense?

Actual return on plan assets
Amortization of prior service cost
Amortization of PBO
Gain
Loss

Answer 16

Amortization of PBO

Question 17

What effect does service cost have on pension expense?

Answer 17

Increase

Question 18

What effect does interest have on pension expense?

Answer 18

Increase

Question 19

What effect does amortization of prior service cost have on pension expense?

Answer 19

Increase

Question 20

What is the result of an unexpected decrease in PBO?

Answer 20

A liability gain

Question 21

What method does the FABD prefer that unrecognized prior service cost be amortized?

Answer 21

year-of-service method

Question 22

Which is not a post-retirement benefit?

Severance pay to laid-off employees
Dental care
Legal/tax services
Tuition assistance

Answer 22

Severance pay

Question 23

A positive return on plan assets (increases/decreases) annual pension expense.

Answer 23

Decreases

Question 24

How are prior service costs due to a plan amendment expensed?

Answer 24

Over future periods using the years-of-service method

Question 25

Are pension plan assets recognized in the company’s financial statements?

Answer 25

No

Question 26

What is the purpose of the corridor approach?

Answer 26

It prevents the balance of OCI-Gain/Loss from getting too large

Question 27

Amortization of prior service cost (increases/decreases) pension expense.

Answer 27

Increases

Question 28

Who carries the risk in a defined-benefit plan?

Answer 28

The company

Question 29

Who makes the contributions to a defined-benefit plan?

Employee/employer/both

Answer 29

Employer

Question 30

Which is formally recognized in the accounts of a company?

Pension asset/liability
Prior service cost
Gains/losses

Answer 30

Pension asset/liability

Question 31

(Actual/Expected) return is included in determining the balance of plan assets.

Answer 31

Actual