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

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

The main purpose of the Pension Benefit Guaranty Corporation is to

The main purpose of the Pension Benefit Guaranty Corporation is to

a. require minimum funding of pensions.
b. require plan administrators to publish a comprehensive description and summary of their plans.
c. administer terminated plans and to impose liens on the employer's assets for certain unfunded pension liabilities.
d. All of these answers are correct.


Answer: administer terminated plans and to impose liens on the employer's assets for certain unfunded pension liabilities

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

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

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

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 is true of pension termination?

Which of the following is true of pension termination?

a. Companies can terminate a pension plan whenever they wish to do so.
b. Terminating a pension plan is illegal in U.S.
c. A company must start a new defined benefit plan after it eliminates the old one.
d. FASB requires recognition in earnings of a gain or loss when a pension obligation is settled.


Answer: FASB requires recognition in earnings of a gain or loss when a pension obligation is settled

A pension asset is reported when

A pension asset is reported when

a. the accumulated benefit obligation exceeds the fair value of pension plan assets.
b. the accumulated benefit obligation exceeds the fair value of pension plan assets, but a prior service cost exists.
c. pension plan assets at fair value exceed the accumulated benefit obligation.
d. pension plan assets at fair value exceed the projected benefit obligation.


Answer: pension plan assets at fair value exceed the projected benefit obligation

A pension liability is reported when

A pension liability is reported when

a. the projected benefit obligation exceeds the fair value of pension plan assets.
b. the accumulated benefit obligation is less than the fair value of pension plan assets.
c. the pension expense reported for the period is greater than the funding amount for the same period.
d. accumulated other comprehensive income exceeds the fair value of pension plan assets.


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

A pension fund gain or loss that is caused by a plant closing should be

A pension fund gain or loss that is caused by a plant closing should be

a. recognized immediately as a gain or loss on the plant closing.
b. spread over the current year and future years.
c. charged or credited to the current pension expense.
d. recognized as a prior period adjustment.


Answer: recognized immediately as a gain or loss on the plant closing

The fair value of pension plan assets is used to determine the corridor and to calculate the expected return on plan assets.

The fair value of pension plan assets is used to determine the corridor and to calculate the expected return on plan assets.

Expected Return
Corridor on Plan Assets


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


Answer: Yes Yes

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

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

The actuarial gains or losses that result from changes in the projected benefit obligation are called

The actuarial gains or losses that result from changes in the projected benefit obligation are called

Asset Liability

Gains & Losses Gains & Losses


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


Answer: No Yes

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

Prior service cost is amortized on a

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

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

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)

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

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 for its employees?

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

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

The actual return on plan assets

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

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

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