According to the FASB, recognition of a liability is required when the projected benefit obligation exceeds the fair value of plan assets

According to the FASB, recognition of a liability is required when the projected benefit obligation exceeds the fair value of plan assets. Conversely, when the fair value of plan assets exceeds the projected benefit obligation, the Board

a. requires recognition of an asset.
b. requires recognition of an asset if the excess fair value of plan assets exceeds the corridor amount.
c. recommends recognition of an asset but does not require such recognition.
d. does not permit recognition of an asset.


Answer: requires recognition of an asset

Which of the following statements is true about postretirement health care benefits?

a. They are generally funded.
b. The benefits are well-defined and level in dollar amount.
c. The beneficiary is the retiree, spouse, and other dependents.
d. The benefit is payable monthly.


Answer: The beneficiary is the retiree, spouse, and other dependents

Which of the following disclosures of pension plan information would not normally be required?

a. The major components of pension expense
b. The amount of prior service cost changed or credited in previous years.
c. The funded status of the plan and the amounts recognized in the financial statements
d. The rates used in measuring the benefit amounts


Answer: The amount of prior service cost changed or credited in previous years

When a company amends a pension plan, for accounting purposes, prior service costs should be

When a company amends a pension plan, for accounting purposes, prior service costs should be

a. treated as a prior period adjustment because no future periods are benefited.
b. amortized in accordance with procedures used for income tax purposes.
c. recorded in other comprehensive income (PSC).
d. reported as an expense in the period the plan is amended.


Answer: recorded in other comprehensive income (PSC)

When a company adopts a pension plan, prior service costs should be charged to

a. accumulated other comprehensive income (PSC).
b. operations of prior periods.
c. Other comprehensive income (PSC).
d. retained earnings.


Answer: Other comprehensive income (PSC)

Prior service cost is amortized on a

a. straight-line basis over the expected future years of service.
b. years-of-service method or on a straight-line basis over the average remaining service life of active employees.
c. straight-line basis over 15 years.
d. straight-line basis over the average remaining service life of active employees or 15 years, whichever is longer.


Answer: years-of-service method or on a straight-line basis over the average remaining service life of active employees

In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as

In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as

a. an offset to the liability for prior service cost.
b. pension asset/liability.
c. as other comprehensive income (G/L)
d. as accumulated other comprehensive income (PSC).


Answer: pension asset/liability

One component of pension expense is actual return on plan assets. Plan assets include

a. assets that a company holds to earn a reasonable return, generally at minimum risk.
b. plan assets still under the control of the company.
c. only assets reported on the balance sheet of the employer as prepaid pension cost.
d. None of these answers are correct.


Answer: assets that a company holds to earn a reasonable return, generally at minimum risk

The actual return on plan assets

a. is equal to the change in the fair value of the plan assets during the year.
b. includes interest, dividends, and changes in the fair value of the fund assets.
c. is equal to the expected rate of return times the fair value of the plan assets at the beginning of the period.
d. All of these answers are correct.


Answer: includes interest, dividends, and changes in the fair value of the fund 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.

Which of the following is not a characteristic of a defined-contribution pension plan?

Which of the following is not a characteristic of a defined-contribution pension plan?

a. The employer's contribution each period is based on a formula.
b. The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan.
c. The accounting for a defined-contribution plan is straightforward and uncomplicated.
d. The benefit of gain or the risk of loss from the assets contributed to the pension fund is borne by the employee.


Answer: The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan

Vested benefits

a. usually require a certain minimum number of years of service.
b. are those that the employee is entitled to receive even if fired.
c. are not contingent upon additional service under the plan.
d. are defined by all of these answers.


Answer: are defined by all of these answers

In accounting for a defined-benefit pension plan

a. an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised.
b. the employer's responsibility is simply to make a contribution each year based on the formula established in the plan.
c. the expense recognized each period is equal to the cash contribution.
d. the liability is determined based upon known variables that reflect future salary levels promised to employees.


Answer: an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised