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

Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries

Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries in its computation?

a. Vested benefit obligation
b. Accumulated benefit obligation
c. Projected benefit obligation
d. Restructured benefit obligation


Answer: Projected benefit obligation

The accumulated benefit obligation measures

a. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.
b. the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.
c. the level cost that will be sufficient, together with interest to provide the total benefits at retirement.
d. the shortest possible period for funding to maximize the tax deduction.


Answer: the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels

The projected benefit obligation is the measure of pension obligation that

a. is required to be used for reporting the service cost component of pension expense.
b. requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels.
c. requires the longest possible period for funding to maximize the tax deduction.
d. is not sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense.


Answer: is required to be used for reporting the service cost component of pension expense