FAR Module 13D

Question 0

Under this pension plan the employer agrees to put a defined percentage of an employee’s pay into a pension plan. Consequently plan participants will receive at retirement whatever benefits the contributions can provide

Answer 0

Defined contribution plan

Question 1

Under this pension plan the employer agrees to provide at retirement a defined or fixed amount

Answer 1

Defined benefit plan

Question 2

This is what you owe your employees today if they all cashed in their pension. This calculation is based on future salary assumptions

Answer 2

The projected benefit obligation (PBO)

Question 3

This is what you owe employees today if they cashed in your pension. In this calculation you base what you owe only on current salary levels

Answer 3

Accumulated benefit obligation

Question 4

Where does the projected benefit obligation appear

Answer 4

This never appears on the financial statements, but you do show your calculations as a disclosure

Question 5

T/F

The codification requires reporting the funding status of a pension plan. Overfunded and underfunded plans must be reported on the balance sheet as either assets or liabilities

Answer 5

TRUE

Question 6

T/F

For ease of calculations you can net an overfunded and underfunded pension plan

Answer 6

FALSE

do not net these

Question 7

If the plan is overfunded how is it recorded on the balance sheet

Answer 7

As a non-current prepaid asset (prepaid pension expense)

Question 8

If the plan is underfunded how is it recorded on the balance sheet

Answer 8

Either as a current liability, a non-current liability, or both

Question 9

What are the five factors involved in pension expense for a DBP

Answer 9

1) Service cost
2) interest component
3) actual return on plan assets
4) prior service cost
5) actuarial gains or losses

Question 10

T/F

The service cost decreases pension expense

Answer 10

FALSE

Service cost increases it

Question 11

How do you calculate service cost

Answer 11

Generally this will be given to you

Question 12

T/F

The interest component increases pension expense

Answer 12

TRUE

Question 13

How do you calculate the interest component

Answer 13

(Beginning projected benefit obligation)
X
(Discount/settlement rate)

Question 14

In what situations will the actual return on plan assets increase or decrease pension expense

Answer 14

If the actual return is positive this decreases pension expense

if the actual return is negative this increases pension expense

Question 15

How do you calculate the actual return on plan assets

Answer 15

Beginning fair market value of assets
+ employer contribution
- benefits paid
= ending balance of plan assets at fair value
+/- actual return on plan assets (plug to make equation balance)

Question 16

Under what situation will you have an actuarial gain

Answer 16

If the actual return is greater than the expected return

Question 17

Under what situation will you have an actuarial loss

Answer 17

The actual return is less than the expected return

Question 18

What do you do with an actuarial gain or loss

Answer 18

Amortize it

This is highly complicated and we most likely won’t be asked to do it

Question 19

What situations cause there to be a prior service cost

Answer 19

1) When the company did not have a pension plan at the beginning but then later got one
2) when a pre-existing pension plan is amended

Question 20

How do you calculate the prior service cost for the period

Answer 20

Unrecognized prior service cost /

avg # of years before avg employee retires

Question 21

T/F

prior service cost can increase or decrease pension expense, but generally will increase pension expense

Answer 21

TRUE

Question 22

An actuarial gain or loss consists of what two factors

Answer 22

1) current period difference between the actual and expected return on plan assets
2) amortization of unrecognized net gain or loss from previous periods

Question 23

T/F

An actuarial gain will increase pension expense while an actuarial loss will decrease pension expense

Answer 23

FALSE

an actuarial gain will decrease pension expense while an actuarial loss will increase pension expense

Question 24

What is the formula for reconciling beginning PBO to ending PBO for a footnote disclosure

Answer 24

Beginning PBO 
\+ service cost 
\+ interest cost 
\+/- prior service cost 
\+/- actuarial gain or loss 
- benefits paid 
= Ending PBO

Question 25

What is the formula for reconciling beginning PBO to ending PBO when an actuary is calculating the gain or loss

Answer 25

Beginning PBO 
\+ service cost 
\+ interest cost 
- benefits paid 
= Ending PBO

Question 26

What is the journal entry to record pension expense

Answer 26

Debit pension expense 
credit pension (liability)

Question 27

What is the journal entry to record pension funding

Answer 27

Debit pension (asset)
credit cash

Question 28

Under what situation will the pension (asset/liability) account have a credit balance versus a debit balance and what does this mean

Answer 28

Credit balance = if pension expense > pension funding. This is a liability

Debit balance = if pension funding > pension expense. This is an asset

Question 29

Describe the T account for the accrued pension asset/liability account

Answer 29

Beginning balance will be a debit if it is an asset (on the left) and a credit if it is a liability (on the right).

The balance in the pension asset/liability account for this period will be added on the appropriate side

This will give you the ending balance

Question 30

What is the journal entry to increase the pension liability because of an actuary (Who calculated an actuarial loss)?

in the event of an actuarial gain this entry will be what?

Answer 30

Debit other comprehensive income gain/loss
credit accrued pension liability

Debit prepaid pension expense
Credit OCI

Question 31

When increasing the pension liability because of an actuary (actuarial loss), what is the related journal entry to record it net of tax

in the situation of an actuarial gain how will this be different?

Answer 31

Debit deferred tax asset
credit OCI - deferred tax asset

Debit OCI - deferred tax liability
Credit deferred tax liability

Question 32

T/F

service costs include assumptions concerning projected changes in future compensation when the pension benefit formula is based on future compensation levels

Answer 32

TRUE

Question 33

What does OPEB stand for

Answer 33

Post retirement benefits other than pensions

Question 34

Under US GAAP the “benefits years of service” method is used to calculate the projected benefit obligation.

Under IFRS what method is used to calculate the present value of the defined-benefit obligation

Answer 34

The projected unit credit method

Question 35

What term does IFRS use in place of accumulated benefit obligation

Answer 35

Accrued benefit obligation

Question 36

The assumed discount/settlement rate should reflect what

Answer 36

The rate at which the pension benefits could be effectively settled. This is why the discount rate is referred to as the settlement rate

Question 37

Which of the following disclosures is not required for companies with the DBP plan

1) A description of the plan
2) the amount of pension expense by component 3) the weighted average discount rate
4) the estimates of future contributions for the next five years

Answer 37

4) - it is only required for the next year

Question 38

T/F

actual return on plan assets and amortization of unrecognized prior service cost are components included in the calculation of net pension cost

Answer 38

TRUE

Question 39

Interest cost included in the net pension cost recognized by an employer sponsoring a defined benefit pension plan represents what

Answer 39

The increase in the projected benefit obligation due to the passage of time

Question 40

The company that maintains a DBP for its employees reports an unfunded pension liability. this cost represents what

Answer 40

The amount that The cumulative net periodic cost accrued exceeds contributions to the plan

Question 41

How do you calculate the pension liability

Answer 41

This will be the excess of unfunded PBO over plan assets

Question 42

An employers obligation for post retirement benefits that are expected to be provided to or for an employee must be fully accrued by what date

Answer 42

The date the employee is fully eligible for benefits