Quiz 2 Flashcards
What are contributory pension plans
Employees voluntarily make payments to increase their benefits. Similar to 401k
What are noncontributory pension plans
Employers bear the entire cost of the pension
Who bears the risk in an defined contribution and benefit plan
In a contribution plan the risk is borne by employees. In a benefit plan the risk is borne by employer
Who makes predictions on the Projected Benefit Obligation (PBO). What affects these predictions
Actuaries.
Mortality rates, employee turnover, interest and earning rates, etc.
FASB requires the use of which type of pension obligation
Projected Benefit Obligation
What are the three measures of pension obligation
Vested - benefit for vested employees at current salaries
Accumulated - benefits for nonvested employees at current salaries
Projected - Benefits for vested and non vested at future salaries
What is overfunded and underfunded status
When PA > PBO it is overfunded
When PBO < PA it is underfunded
What are the 5 components of pension expense
Service cost for the year (increase) Interest on liability (increase) Actual return on plan assets (general decrease) Amort of PSC (general increase) Gain or loss (increase/decrease)
What is the entry for service cost
Debit Pension Expense
Credit PBO
A gain or loss in pensions is defined by what
Sudden and large changes in fair value of plant assets. Happens to assets due to stock market. Liabilities due to change in assumptions
What are the elements of a pension worksheet
A table consisting of items, annual pension expense, cash OCI(PSC and G/L), pension asset/liability, and memo record for PBO and PA
On January 1, 2020, Zarle Company provides the following information related to its pension plan for the year 2020.
Plan assets, January 1, 2020, are $100,000.
Projected benefit obligation, January 1, 2020, is $100,000.
Annual service cost is $9,000.
Settlement rate is 10 percent. (PBO * .10)
Actual return on plan assets is $10,000.
Funding contributions are $8,000.
Benefits paid to retirees during the year are $7,000.
Describe the entry process
Debit 9000 service cost to expense Debit 10000 interest cost to expense Credit 10000 actual return to expense Credit 8000 cash for contributions Take difference between expense and cash for Pension Liability
PSC is calculated using what method
The years of service method
What accounts are under other comprehensive income for pensions
Prior service cost and Gain/Loss
What is prior service cost
When benefiting employees for past work for a plan, Employer should recognize the pension expense over the remaining service lives of the employees who are expected to benefit from the change in the plan.
What is the smoothing technique
How FASB handles gains/losses in pensions
What component of return do companies include in a given year
Companies include the expected return on the plan assets as a component of pension expense, not the actual return in a given year. difference between the expected return and actual return is referred to as an unexpected gain/loss
What is the corridor approach
An approach for amortizing the accumulated OCI account balance when it gets too large. 10% or larger of the beginning PBO or PA balance.
Shin Corporation had a projected benefit obligation of $3,100,000 and plan assets of $3,300,000 at January 1, 2020.
Shin also had a net actuarial loss of $465,000 in Accumulated OCI at January 1, 2020.
The average remaining service period of Shin’s employees is 7.5 years.
Compute Shin’s minimum amortization loss
Shin has too much in OCI (3.3m*.1)=330k
465k in OCI > 330k corridor
Must amortize the additional 135k over the service life of 7.5 years
135k/7.5=18000
How does overfunded or underfunded status get recognized
Companies must recognize on their balance sheet the overfunded (pension asset) or underfunded (pension liability) status of their defined benefit pension plan.
OCI Loss is what entry
a credit
OCI Gain is what entry
a debit
OCI PSC expense is what entry
a credit
What is a deferred tax liability
Deferred Tax Liability represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year.
What is a deferred tax asset
Deferred Tax Asset represents the increase in taxes refundable (or saved) in future years as a result of deductible temporary differences existing at the end of the current year.
What is a cumulative temporary difference
When taxable income is different than pretax financial income due to a difference to be paid out in later years
What is the general entry for deferred tax liability
Debit Income Expense
Credit Income Expense Payable and deferred tax liability (income * tax rate)
