Chapter 20 - Accounting for Pensions and Postretirement Benefits Flashcards
What kinds of pension plans do companies generally design?
contributory, noncontributory, insured, qualified
Qualified
A retirement plan which requires an employer to contribute a certain sum each period based on a formula is a ______ plan.
defined-contribution
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 ______.
Accumulated benefit obligation
The interest on the projected benefit obligation component of pension expense reflects what?
The rate at which pension benefits could effectively be settled
What are the 2 ways prior service cost can be amortized?
Straight-line over average remaining service life of active employees
Year-of-service method
The _____ of pension plan assets is used to determine the corridor and calculate the return on plan assets.
fair value
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.
Deferred pension cost
Who administers terminated plans and imposes liens on the employer’s assets for certain unfunded pension liabilities?
The pension benefit guarantee corporation
What is the name of a pension plan in which the employer bears the entire cost?
(contributory, noncontributory, insured, qualified)
noncontributory plan
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 ____.
Funding
At each balance sheet date, a company should report a pension asset or liability equal to ______.
The funded status relative to the PBO.
The balance of the prepaid/accrued cost column in the pension worksheet should equal the net balance in the _____.
memo record
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?
Both are increased
The unexpected gains or losses that result from changes in the PBO are called _____ Gains and Losses.
Liability
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?
The gain or loss should be amortized
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
Amortization of PBO
What effect does service cost have on pension expense?
Increase
What effect does interest have on pension expense?
Increase
What effect does amortization of prior service cost have on pension expense?
Increase
What is the result of an unexpected decrease in PBO?
A liability gain
What method does the FABD prefer that unrecognized prior service cost be amortized?
year-of-service method
Which is not a post-retirement benefit?
Severance pay to laid-off employees
Dental care
Legal/tax services
Tuition assistance
Severance pay
A positive return on plan assets (increases/decreases) annual pension expense.
Decreases
How are prior service costs due to a plan amendment expensed?
Over future periods using the years-of-service method
Are pension plan assets recognized in the company’s financial statements?
No
What is the purpose of the corridor approach?
It prevents the balance of OCI-Gain/Loss from getting too large
Amortization of prior service cost (increases/decreases) pension expense.
Increases
Who carries the risk in a defined-benefit plan?
The company
Who makes the contributions to a defined-benefit plan?
Employee/employer/both
Employer
Which is formally recognized in the accounts of a company?
Pension asset/liability
Prior service cost
Gains/losses
Pension asset/liability
(Actual/Expected) return is included in determining the balance of plan assets.
Actual
