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Intermediate Accounting, 2/e
Thomas Beechy, York University
Joan E. Conrod, Dalhousie University
OLC Content Author: Clifton Philpott, Kwantlen University College

Pensions and Other Post-Retirement Benefits

Multiple Choice Quiz


Which of the following statements is true about defined contribution plans?
(CGA FA3-Dec 99)
A)Contributions are made only by the employee.
B)The investment risk is borne by the employer.
C)They are more complex than defined benefit plans.
D)The employer's liability is satisfied by making the correct contribution.

If the value of the pension fund assets is greater than the projected benefit obligation, how is the difference disclosed?
(CGA FA3-Dec 99)
A)It is reported as prepaid pension cost.
B)It is reported as accrued pension cost.
C)It is reported as a long-term investment.
D)It is not recognized on the balance sheet.

What are vested benefits in a defined benefit pension plan?
(CGA FA3-Dec 00)
A)Benefits that are not contingent on continued employment
B)Benefits to be paid to the retired employee in the current year
C)Benefits to be paid to the retired employee in subsequent years
D)Benefits to be paid from funds currently in the hands of the independent trustee

Which of the following statements characterizes defined benefit pension plans?
(CGA FA3-Mar 01)
A)Retirement benefits are based on the plan's benefit formula.
B)The risk associated with the performance of the plan assets is borne by the employee.
C)They are comparatively simple in construction and raise few accounting issues for employers.
D)The employer's obligation is satisfied by making the appropriate amount of periodic contribution.

If the actual return on pension plan assets in a defined benefit plan exceeds the expected return, how is the difference treated?
(CGA FA3-Mar 01)
A)The difference is recorded as a deferred loss.
B)The difference is recorded as a deferred gain.
C)The difference is recognized as a loss in the current period.
D)The difference is recognized as a gain in the current period.

How are special termination benefits that were paid to employees as incentives to retire recognized on financial statements?
(CGA FA3-Mar 01)
A)The termination benefits are recorded as a gain immediately.
B)The termination benefits are recorded as an expense immediately.
C)The termination benefits are amortized over a maximum of 5 years.
D)The termination benefits are amortized over the average remaining service period

Which of the following is never one of the six continuing components of pension expense?
(CGA FA3-June 01)
A)Expected earnings on plan assets
B)Benefits paid to retired employees
C)Amortization of excess actuarial gains or losses
D)Interest on the accumulated accrued pension obligation

When is compensation expense resulting from a compensatory stock option plan generally recognized?
(CGA FA3-Dec 01)
A)In the period of exercise
B)In the period of the grant
C)Over the periods of the employee's service life to retirement
D)Over the periods benefited by the employee's required service

When a company adopts a pension plan, how should the prior service costs be treated?
(CGA FA3-Dec 01)
A)They should be charged to retained earnings.
B)They should be charged to operations of prior periods.
C)They should be charged to operations of the current period.
D)They should be charged to operations of current and future periods.

Which of the following disclosures of pension-plan information would not normally be required?
(CGA FA3-Dec 01)
A)The major components of pension expense
B)The rates used in measuring the benefit amounts
C)The amount paid from the pension fund to retirees during the period
D)The funded status of the plan and the amounts recognized in the financial statements

The pension expense reported by a company will be increased by interest cost when:
A)projected benefit obligation exists at the beginning of the year.
B)amounts funded are greater than pension cost accrued.
C)pension plan asset exists at the beginning of the year.
D)the plan is fully vested.

In the computation of pension expense, which of the following components is likely to be negative (i.e., to reduce pension expense)?
A)Service cost.
B)Interest cost.
C)Amortization of past service cost.
D)Amortization of net asset gain.

Costs related to a new pension plan that are necessary to "catch up" for services rendered prior to the inception of the pension plan are classified as:
A)actuarial losses.
B)past service costs.
C)retroactive deferred charge.
D)service costs.

The projected benefit obligation on January 1, 2002, was $160,000. During 2002, pension benefits paid by the trustee were $20,000. The actuary's discount rate was 10%. Service cost for 2002 is $60,000. Pension plan assets (at fair value) increased during 2002 by $30,000, as expected. There had been no liability gain or loss. The amount of the projected benefit obligation at December 31, 2002, was:

Diane Company's records revealed the following related to its defined benefit pension plan:

Plan assets at fair value, January 1, 2002        $3,000
Expected return on plan assets in 2002300
Actual return on plan assets in 2002200
Contributions to the pension funds in 2002500
Pension benefits paid in 2002520
Current service costs360

The December 31, 2002 amount of pension plan assets at fair value is: