Enter the letter corresponding to the response that best completes each of the following statements or questions.
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| 1 | |
In an employer-sponsored defined benefit pension plan, the interest cost included in the pension expense represents: |
| | A) | The effective discount rate times the unamortized balance of prior service costs. |
| | B) | The increase in the projected benefit obligation due to the passage of time. |
| | C) | The increase in the fair value of plan assets due to the passage of time. |
| | D) | The difference between the actual and expected returns on plan assets. |
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| 2 | |
Dividends from stock investments by a pension plan are reported by the employer as: |
| | A) | Investment revenue on an accrual basis. |
| | B) | Investment revenue on a cash basis. |
| | C) | A reduction of the periodic pension expense. |
| | D) | A reduction of the projected benefit obligation (PBO). |
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| 3 | |
The component of periodic pension expense that represents the actuarial present value of the increase in an employer's pension obligation to employees because of their services rendered during the current period is the: |
| | A) | Current cost. |
| | B) | Service cost. |
| | C) | Accumulated benefit obligation (ABO). |
| | D) | Projected benefit obligation (PBO). |
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| 4 | |
The Colorado Copper Company sponsors a defined benefit pension plan. The following information pertains to that plan:
| Projected benefit obligation at Jan. 1, 2007 | $144 million | | Service cost for 2007 | 36 million | | Retiree benefits paid (end of year) | 30 million | | Discount rate | 10% |
No change in actuarial estimates occurred during 2007. What is CCC's projected benefit obligation at December 31, 2007? |
| | A) | $164.4 million |
| | B) | $158.4 million |
| | C) | $150.0 million |
| | D) | $128.4 million |
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| 5 | |
Panther Products sponsors a defined benefit pension plan. The following information pertains to that plan:
| Service cost for 2007 | $480 million | | Actual and expected return on plan assets for 2007 | 105 million | | 2000 amortization of unrecognized prior service cost | 15 million | | Interest on pension obligation for 2007 | 150 million | | Retiree benefits paid during 2007 | 30 million |
The pension expense that Panther should report in its 2007 income statement is: |
| | A) | $510 million |
| | B) | $540 million |
| | C) | $630 million |
| | D) | $750 million |
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| 6 | |
Information regarding the defined-benefit pension plan of Tri Cities Transport included the following for 2007 (in millions):
| Service cost | $48 | | Interest cost | 32 | | Actual and expected return on plan assets | 26 | | Amortization of unrecognized net gain | 3 | | Amortization of unrecognized prior service cost | 5 | | Retiree benefits paid (end of year) | 50 |
What is Tri Cities' pension expense for 2007? |
| | A) | $56 million |
| | B) | $62 million |
| | C) | $98 million |
| | D) | $164 million |
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| 7 | |
Information regarding the defined-benefit pension plan of Certainty Services included the following for 2007 ($ in millions):
| Plan assets, January 1 | 70 | | Plan assets, December 31 | 105 | | Retiree benefits paid (end of year) | 17 | | Employer contributions to the pension plan (end of year) | 42 |
What amount should Certainty use as the actual return on plan assets when computing pension expense for 2007? |
| | A) | $10 million |
| | B) | $24 million |
| | C) | $35 million |
| | D) | $60 million |
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| 8 | |
Information regarding the defined-benefit pension plan of Neo Products included the following for 2007 (in millions):
| Plan assets, January 1 | $210 | | Plan assets, December 31 | 315 | | Return on plan assets | 30 | | Employer contributions to the pension plan (end of year) | 126 |
What amount of retiree benefits was paid at the end of 2007? |
| | A) | $21 million |
| | B) | $51 million |
| | C) | $72 million |
| | D) | $105 million |
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| 9 | |
Information regarding the defined-benefit pension plan of Melrose Products included the following for 2007 (in millions):
| Plan assets, January 1 | $350 | | Plan assets, December 31 | 525 | | Retiree benefits paid (end of year) | 85 | | Return on plan assets | 50 |
What were the employer contributions to the pension plan at the end of 2007? |
| | A) | $30 million |
| | B) | $175 million |
| | C) | $210 million |
| | D) | $225 million |
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| 10 | |
Information regarding the defined-benefit pension plan of Glavin Industries included the following for 2007 (in millions):
| Plan assets, January 1 | $210 | | Retiree benefits paid (end of year) | 150 | | Actual return on plan assets | 30 | | Employer contributions to the pension plan (end of year) | 126 | | Expected rate of return on plan assets | 10% |
What amount should Glavin report in its disclosure notes for plan assets at December 31, 2007? |
| | A) | $156 million |
| | B) | $207 million |
| | C) | $216 million |
| | D) | $516 million |
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| 11 | |
Accumulated other comprehensive income: |
| | A) | is a liability. |
| | B) | is a shareholders’ equity account. |
| | C) | is an asset. |
| | D) | is reported in the income statement. |
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| 12 | |
A statement of comprehensive income does NOT include: |
| | A) | return on plan assets. |
| | B) | losses from the return on assets falling short of expectations. |
| | C) | gains from changes in estimates regarding the PBO. |
| | D) | net income. |
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| 13 | |
JL Health Services reported a net loss–pensions in last year's balance sheet. This year, the company revised its estimate of future salary levels causing its PBO estimate to decline by $24. Also, the $48 million actual return on plan assets was less than the $54 million expected return. As a result: |
| | A) | the statement of comprehensive income will report a $6 million gain and a $24 million loss. |
| | B) | the pension liability will increase by $18 million. |
| | C) | accumulated other comprehensive income will increase by $18 million. |
| | D) | the pension liability will decrease by $24 million. |
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| 14 | |
On January 1, 2007, DeSoto Industries' accumulated postretirement benefit obligation was $75 million. Retiree benefits of $9 million were paid at the end of 2007. Service cost for 2007 is $21 million. Estimates and assumptions regarding future health care costs were revised in 2007, causing the actuary to revise downward the estimate of the APBO by $2 million. The actuary's discount rate is 8%. There were no other pertinent account balances at the end of 2007. What is the accumulated postretirement benefit obligation at December 31, 2007? |
| | A) | $ 91 million |
| | B) | $ 93 million |
| | C) | $100 million |
| | D) | $102 million |
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| 15 | |
On December 31, 2007, Staymore Inns' accumulated postretirement benefit obligation was $273 million. Retiree benefits of $27 million were paid at the end of 2007. Service cost for 2007 is $63 million. Estimates and assumptions regarding future health care costs were revised in 2007, causing the actuary to revise downward the estimate of the APBO by $6 million. The actuary's discount rate is 8%. There were no other significant accounts related to the plan at the end of 2007. What was the accumulated postretirement benefit obligation at January 1, 2007? |
| | A) | $200 million |
| | B) | $210 million |
| | C) | $225 million |
| | D) | $273 million |
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| 16 | |
On December 31, 2006, the expected postretirement benefit obligation was $300 million. The accumulated postretirement benefit obligation was $175 million. Service cost for 2007 was $60 million. The actuary's discount rate is 8%. What was the interest cost for 2007? |
| | A) | $14.0 million |
| | B) | $18.8 million |
| | C) | $24.0 million |
| | D) | $28.8 million |
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| 17 | |
Imagine Publishers, Inc. sponsors a postretirement plan providing health care benefits. The following information relates to the current year's activity of Imagine's postretirement benefit plan: | Service cost | $120 million | | Actual and expected return on plan assets | 30 million | | Interest cost | 40 million | | Amortization of net loss | 10 million | | Amortization of prior service cost | 20 million | | Retiree benefits paid (end of year) | 35 million |
What is Imagine's postretirement benefit expense? |
| | A) | $140 million |
| | B) | $150 million |
| | C) | $160 million |
| | D) | $185 million |
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| 18 | |
Expansion, Inc. sponsors an unfunded postretirement plan providing health care benefits. The following information relates to the current year's activity of Expansion's postretirement benefit plan: | Service cost | $120 million | | Interest cost | 40 million | | Amortization of net gain | 10 million | | Prior service cost | none | | Retiree benefits paid (end of year) | 35 million |
What is Expansion's postretirement benefit expense? |
| | A) | $115 million |
| | B) | $150 million |
| | C) | $160 million |
| | D) | $170 million |
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| 19 | |
Starr Builders sponsors an unfunded postretirement plan providing health care benefits. The following information relates to the current year's activity of Starr's postretirement benefit plan: | Service cost | $240 million | | Amortization of net gain | 20 million | | Prior service cost | none | | Retiree benefits paid (end of year) | 60 million | | Postretirement benefit expense | $300 million |
What is Starr's interest cost for the year? |
| | A) | $40 million |
| | B) | $80 million |
| | C) | $60 million |
| | D) | $100 million |
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| 20 | |
Richmond Products, Inc. sponsors a postretirement plan providing health care benefits to employees who have completed at least 10 years service and are age 53 years or older at retirement. To date, the employees that have retired under the plan have an average age of 60. No employee has worked beyond age 65. Crystal Alicea was hired when she was 46 years old. The attribution period for accruing Richmond's expected postretirement health care benefit obligation to Alicea is during the period when Alicea is: |
| | A) | 53 to 60 years old |
| | B) | 53 to 65 years old |
| | C) | 46 to 56 years old |
| | D) | 46 to 65 years old |
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| 21 | |
Amortizing a net loss for pensions and other postretirement benefit plans will: |
| | A) | increase retained earnings and increase accumulated other comprehensive income. |
| | B) | decrease retained earnings and decrease accumulated other comprehensive income. |
| | C) | increase retained earnings and decrease accumulated other comprehensive income. |
| | D) | decrease retained earnings and increase accumulated other comprehensive income. |
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