CHAPTER20 SELFTEST

1. Pension plans that offer tax benefits are called: contributory pension plans. insured pension plans. qualified pension plans. noncontributory pension plans.

2. For a defined benefit plan, the pension asset or liability is: the defined benefit obligation minus the fair value of the plan assets. the funded status, net of unrecognized past service cost and unrecognized net gain or loss. the fair value of the plan assets, net of unrecognized past service cost. None of these.

3. In a defined benefit plan, the funding level depends on all of the following factors except: interest earnings. turnover. compensation levels. age of the employer company.

4. The required disclosure reconciliation: shows all major components of pension expense.

projects contributions to be made in the next period. explains the change in the defined benefit obligation and the fair value of the plan assets during the period. all of the above.

5. Which one of the following is a component of pension expense? Service cost. Interest cost. Expected return on assets. All of the above.

6.
All of the following increase pension expense except: service cost. interest on the liability. amortization of past service cost. All of these.

7. Which of the following did the IASB adopt as the measure of the employer's obligation under the pension plan? Vested benefit obligation. Projected benefit obligation. Defined benefit obligation.

None of these.

8. Which of the following results from unexpected decreases in the pension obligation? Asset gains. Liability gains. Liability losses. Asset losses.

9. For benefits that do not vest immediately, the IASB requires that unrecognized past service cost be amortized using the: sum-of-the-years' digits method. years-of-service method. double-declining balance method. straight-line method.

10. Which one of the following statements related to unexpected gains and losses is not correct? Liability gains are deferred but liability losses are recognized in the year they occur. Asset gains occur when the actual return is greater than the expected return. Asset gains and losses are recorded in an Unrecognized Net Gain or Loss account. Liability gains result from unexpected decreases in the projected benefit obligation balance.

11. The unrecognized net gain or loss balance must be amortized when it exceeds 10% of the larger of the: beginning defined benefit obligation or the fair value of the plan assets.

ending defined benefit obligation or the market related asset value. ending accumulated benefit obligation or the market-related asset value. beginning accumulated benefit obligation or the fair value of plan assets.

12. Which of the following losses should be recognized immediately? Asset losses and liability losses. Losses that arise from a single occurrence such as a plant closing. Liability losses. Asset losses.

13. The funded status of a defined benefit plan is the difference between the: defined benefit obligation and the fair value of plan assets. accumulated benefit obligation and the fair value of plan assets. accumulated benefit obligation and the market-related asset value. projected benefit obligation and the market-related asset value.

14. The measure for valuing pension obligation which computes the deferred compensation amount based on all years of service performed by both vested and non-vested employees using current salary levels is: the vested benefits pension obligation. the contributory pension benefit obligation. the accumulated benefit obligation. the defined benefit obligation.

15. All of the following pension information should be disclosed in the notes to the financial statements except: the expected benefit payments to be paid to current plan participants for each of the next five fiscal years. a reconciliation showing how the projected benefit obligation and the fair value of the plan assets changed from the beginning to the end of the period. a company's best estimate of expected contributions to be paid to the plan during the next year. All of the options are disclosed.

16. All of the following statements regarding the accounting for various forms of compensation plans under IFRS are true except: In order to dampen and in some cases fully eliminate the fluctuations in pension expenses, IFRS uses smoothing provisions. IFRS does not separate pension plans into defined-contribution plans and defined-benefit plans. IFRS requires allows companies with defined benefit plans the choice of recognizing actuarial gains and losses in income immediately or amortizing them over the expected remaining working lives of employees. IFRS does not recognize prior service costs on the balance sheet.

17. 18. 19. 20. 21. 22. 23. ADDITIONALSELFTEST

1. In a defined benefit plan, pension expense is not necessarily equal to the firm's cash contribution. False True

2. If the actual return on plan assets is positive, then it is subtracted from the annual pension expense. True False

3. All past service costs due to a pension plan amendment are expensed in the year the amendment occurred. True False

4. Pension plan assets are not recognized in the company's accounts or its financial statements. False True

5. The corridor approach is used to prevent the balance of the Unrecognized Net Gain or Loss account balance from getting too small. True False

6. Companies must record an expense when employees earn future benefits, and recognize an existing obligation to pay pensions later based on current services received. False True

7. Service cost is the expense caused by the increase in pension benefits payable to employees because of their services rendered during years prior to the current year.

False True

8. Amortization of past service cost generally decreases pension expense. True False

9. The expected postretirement benefit obligation is the actuarial present value of future benefits attributed to employees' services rendered to a particular date. True False

10. Employers are at risk with defined benefit plans because they must contribute enough to meet the cost of benefits that the plan defines. False True

11. Unlike IFRS, U.S. GAAP does not permit the choice of recognizing actuarial gains and losses in income immediately or amortizing them over the expected remaining work lives of employees. False True

12. In a defined benefit plan, the contributions to the plan are made by the: employee. employer.

both employee and employer. independent third party.

13. The approach adopted by the accounting profession to measure a firm's pension obligation is the: defined benefit obligation. accumulated benefit obligation. vested benefit obligation. projected benefit obligation.

14. How many components are there in the determination of pension expense? 6 4 3 5

15. Which of the following may decrease the annual pension expense amount? Service Cost. Actual return on plan assets. Amortization of past service cost. Interest on the liability.

16. Which of the following is not a component of pension expense?

service cost for the year.

expected return on plan assets. actual return on plan assets. amortization of past service cost.

17. Amortization of past service costs for unvested amounts is based on the: number of employees method. units of production method. years of service method. the straight-line method.

18. The interest rate used to determine the interest on the liability component of pension expense is the: expected rate on plan assets. actuarial rate used to calculate the present value of pension benefits. settlement rate. employer's incremental rate.

19. Which of the following is formally recognized in the accounts of a company? Pension Asset/Liability. Gain/Losses. Past Service Cost. All of the above.

20. Which of the following is not included in determining the balance of plan assets?

Benefits paid. Contributions made. Expected return. Actual returns.

21. 22. 23.