F7 - Pensions and Equity

Question 1

A company sponsors two defined benefit pension plans. The following info related to the plans at year-end.
Plan A Plan B
FV of plan assets 800k 1,000k
Projected benefit Obligation 1,000 700k
what amount should the company report on its BS related to the plans?
a. Liability of 100k
b. Asset of 1,800k, liability of 1,400k
c. Liability of 200k, asset 300k

Answer 1

c - if a company has multiple defined benefit pension plans, the funded status of each plan is calculated separately.

Question 2

What accounts do you use to determine if a pension plan is over or underfunded?

Answer 2

FV of plan assets - PBO = over (under) funded

Question 3

Harmony has a single-employer defined benefit pension plan. Harmony should report a liability related to the plan equal to which of the following amounts?

a. the projected benefit obligation
b. the unfunded vested benefit obligation
c. the accumulated benefit obligation
d. the unfunded projected benefit obligation

Answer 3

d. first you compare the funded status. since it is a liability, we know it was underfunded/unfunded.

Question 4

An overfunded single-employer defined benefit postretirement plan should be recognized in a classified statement of financial position as a:

a. noncurrent liability
b. current asset
c. Current liability
d. noncurrent asset

Answer 4

d.

Question 5

How should plan investments be reported in a defined benefit plans financial statement?

Answer 5

At Fair Value

Question 6

What statement does a company report its net periodic pension cost for the year?

Answer 6

On it’s income statement.

Question 7

What happens to Stockholders Equity when a company acquires treasury stock at a price less than their BV?

Answer 7

1. Decrease SE in total. All treasury stock transactions decrease total equity.
2. Increase book value per share (TS reduces CS, which is the denominator, even though SE also goes down, the net affect is an increase)

Question 8

Where do the Gains and Losses get credited/debited in Stockholders equity when stock is reissued?

Answer 8

a. If the reacquisition price is less than the original price, the “gain’ is credited to APIC.
b. If the reacquisition price is more than the original issue price, the “loss’ is debited to retained earnings.