Chapter 20 Pension Self-Assessment Quiz Flashcards
Companies generally design pension plans that are
noncontributory.
contributory.
insured.
qualified.
qualified
Companies generally design their pension plans so as to take advantage of federal income tax benefits. Plans that offer tax benefits are called qualified pension plans . They permit deductibility of the employer’s contributions to the pension fund and tax-free status of earnings from pension fund assets.
Commonly, in a defined benefit plan, the contributions to the plan are made by the:
employee.
both employee and employer.
independent third party.
employer.
employer.
When the employer bears the entire cost of a pension plan’s costs, the plan is called a
voluntary plan.
noncontributory plan.
contributory plan.
funded plan.
noncontributory plan.
The computation of pension expense includes all the following except
interest on projected benefit obligation.
all of these are included in the computation.
expected return on plan assets.
service cost component measured using current salary levels.
service cost component measured using current salary levels.
- Service cost.
- Interest on the liability.
- Actual return on plan assets.
- Amortization of prior service cost.
- Gain or loss
One component of pension expense is actual return on plan assets. Plan assets include
assets that a company holds to earn a reasonable return, generally at minimum risk.
none of these answers are correct.
only assets reported on the balance sheet of the employer as prepaid pension cost.
plan assets still under the control of the company.
assets that a company holds to earn a reasonable return, generally at minimum risk.
The interest component of pension expense in the current period is computed by multiplying the settlement rate by the beginning balance of the projected benefit obligation.
True
False
True
Projected benefit obligation $3,730,000
Fair value of plan assets 3,340,000
The settlement rate is 10%. Other data related to the pension plan for 2014 are:
Service cost $334,000
Amortization of unrecognized prior service costs 78,000
Contributions 390,000
Benefits paid 150,500
Actual return on plan assets 338,100
Amortization of unrecognized net gain 33,400
The balance of the projected benefit obligation for Roca at December 31, 2014 is
$4,490,500. $4,061,500. $4,286,500. $4,038,100.
$4,286,500.
Projected benefit obligation \+ 10% settlement \+ Service cost - Benefits paid
Which of the following is NOT included in determining the balance of plan assets?
Benefits paid.
Expected return.
Contributions made.
Actual returns.
Expected return.
he balance of the Pension Asset/Liability column in the pension worksheet should equal the
balance of the Plan Assets.
balance of the Accumulated Pension Obligation.
net balance in the memo record.
balance of the Projected Benefit Obligation.
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
the expense should be recognized immediately, but the liability may be deferred until a reasonable basis for its determination has been identified.
both the pension expense and the projected benefit obligation are usually greater than before.
both the pension expense and the projected benefit obligation are usually less than before.
the expense and the liability should be recognized at the time of the plan change.
both the pension expense and the projected benefit obligation are usually greater than before.
Companies should recognize the entire increase in projected benefit obligation due to a plan initiation or amendment as pension expense in the year of amendment.
True
False
False
When either initiating (adopting) or amending a defined benefit plan, a company often provides benefits to employees for years of service before the date of initiation or amendment. As a result of this prior service cost, the projected benefit obligation is increased to recognize this additional liability.
Prior service cost is amortized on a
straight-line basis over 15 years.
straight-line basis over the expected future years of service.
straight-line basis over the average remaining service life of active employees or 15 years, whichever is longer.
years-of-service method or on a straight-line basis over the average remaining service life of active employees.
years-of-service method or on a straight-line basis over the average remaining service life of active employees.
Prior service costs due to a pension plan amendment are expensed in the year the amendment occurred.
True
False
False
The cost of any retroactive benefits (prior service cost) is recognized in other comprehensive income and amortized over future periods using the years-of-service method.
Amortization of prior service costs is based on the:
units of production method.
none of these answers are correct.
number of employees method.
years of service method.
years of service method.
When is the balance of the Unrecognized Net Gain or Loss account subject to amortization?
When it equals 10% of the beginning balance of the projected benefit obligation.
When it equals 10% of the beginning balance of the market-related value of the plan assets.
Never. The Unrecognized Net Gain or Loss account remains unrecognized.
When it exceeds 10% of the larger of the beginning balances of the projected benefit obligation or the market-related value of the plan assets.
When it exceeds 10% of the larger of the beginning balances of the projected benefit obligation or the market-related value of the plan assets.
Corridor approach
