F7: Pensions and Equity

Question 1

Define accumulated benefit obligation.

Answer 1

PV of future retirement payments attributed to the pension benefit formula to employee services rendered prior to a date, based on current and past compensation levels.

Question 2

How are net unrecognized gains amortized under the corridor approach?

Answer 2

Unrecognized Gain or Loss
Less(10% Greater of PBO OR FMV at beg. of year)
_______________________________________
Excess
Divided by Avg. remaining service life
_______________________________________
Amortization of unrecognized gain or loss

Question 3

How are interest costs treated in calculating projected benefit obligations?

Answer 3

Interest costs are added to the PB0 at beginning of year.

Question 4

Define SIR AGE

Answer 4

Service cost, Interest cost, Expected RETURN on plan assets, Amortization of prior service costs, Amortization of (gains)/losses, Amortization of EXISTING transition asset.

Question 5

Define overfunded pension plan

Answer 5

Assets exceed liabilities

Question 6

Define underfunded pension plan

Answer 6

Liabilities exceed assets

Question 7

What are the two types of methods for accounting for Treasury Stock?

Answer 7

Par method and cost method

Question 8

How are gains and losses recorded under the par method and cost method for treasury stock?

Answer 8

Par value: Gains and losses recorded immediately upon repurchase. Cost Method: Gains and losses recorded upon reissue.

Question 9

When cash is received upon issuance of stock, where is it reported on the statement of cash flows?

Answer 9

Financing inflow. This is contributed capital. We did not earn it.

Question 10

When you buy back your own stock, where is the cash reported on the statement of cash flows?

Answer 10

Financing outflow.

Question 11

What is defined as a small stock dividend and how is it measured?

Answer 11

A small stock dividend is a stock dividend that is less than 20% and is measured at FMV of stock. No affect on total stockholder’s equity. (DR: RE, CR: CS)

Question 12

What is defined as a large stock dividend and how is it measured?

Answer 12

A large stock dividend is a stock dividend that is greater that 25% and is measured at par value of stock. Issuance expected to reduce market price of stock. No affect on total stockholder’s equity.