Whenever a defined-benefit plan is amended and credit is given to employees for years of service provided before the date of amendment

Whenever a defined-benefit plan is amended and credit is given to employees for years of service provided before the date of amendment

a. both the accumulated benefit obligation and the projected benefit obligation are usually greater than before.
b. both the accumulated benefit obligation and the projected benefit obligation are usually less than before.
c. the expense and the liability should be recognized at the time of the plan change.
d. the expense should be recognized immediately, but the liability may be deferred until a reasonable basis for its determination has been identified.


Answer: both the accumulated benefit obligation and the projected benefit obligation are usually less than before

Gains and losses that relate to the computation of pension expense should be

a. recorded currently as an adjustment to pension expense in the period incurred.
b. recorded currently and in the future by applying the corridor method which provides the amount to be amortized.
c. amortized over a 15-year period.
d. recorded only if a loss is determined.


Answer: recorded currently and in the future by applying the corridor method which provides the amount to be amortized

A corporation has a defined-benefit plan. A pension liability will result at the end of the year if the

a. projected benefit obligation exceeds the fair value of the plan assets.
b. fair value of the plan assets exceeds the projected benefit obligation.
c. amount of employer contributions exceeds the pension expense.
d. amount of pension expense exceeds the amount of employer contributions.


Answer: projected benefit obligation exceeds the fair value of the plan assets

Which of the following items should be included in pension expense calculated by an employer who sponsors a defined-benefit pension plan

Which of the following items should be included in pension expense calculated by an employer who sponsors a defined-benefit pension plan for its employees?

Amortization of
Fair value prior
of plan assets service cost


a. Yes Yes
b. Yes No
c. No Yes
d. No No


Answer: No Yes

The computation of pension expense includes all the following except

a. service cost component measured using current salary levels.
b. interest on projected benefit obligation.
c. expected return on plan assets.
d. All of these are included in the computation.


Answer: service cost component measured using current salary levels

The relationship between the amount funded and the amount reported for pension expense is as follows:

a. pension expense must equal the amount funded.
b. pension expense will be less than the amount funded.
c. pension expense will be more than the amount funded.
d. pension expense may be greater than, equal to, or less than the amount funded.


Answer: pension expense may be greater than, equal to, or less than the amount funded.

In computing the service cost component of pension expense, the FASB concluded that

In computing the service cost component of pension expense, the FASB concluded that

a. the accumulated benefit obligation provides a more realistic measure of the pension obligation on a going concern basis.
b. a company should employ an actuarial funding method to report pension expense that best reflects the cost of benefits to employees.
c. the projected benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense.
d. All of these answers are correct.


Answer: the projected benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense

Differing measures of the pension obligation can be based on

a. all years of service—both vested and nonvested—using current salary levels.
b. only the vested benefits using current salary levels.
c. both vested and nonvested service using future salaries.
d. All of these answers are correct.



Answer: All of these answers are correct

The interest on the projected benefit obligation component of pension expense

a. reflects the incremental borrowing rate of the employer.
b. reflects the rates at which pension benefits could be effectively settled.
c. is the same as the expected return on plan assets.
d. may be stated implicitly or explicitly when reported.


Answer: reflects the rates at which pension benefits could be effectively settled