Interim acct chap 17 mc Questions AND Correct Answers EXAM
A company's defined benefit pension plan had a PBO of $265,000 on January 1, 2018. During 2018,
pension benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service
cost for 2018 was $80,000. Plan assets (fair value) increased during the year by $45,000. The
amount of the PBO at December 31, 2018, was: - ✔✔ $331,500.
Explanation
PBO 1/1 $265,000
Service cost 80,000
Interest cost ($265,000 × 10%) 26,500
Benefits paid (40,000) PBO 12/31 $331,500
A net gain or loss affects the pension expense only if it exceeds an amount equal to what
percentage of the PBO or plan assets, whichever is higher? - ✔✔ 10%.
An underfunded pension plan means that the: - ✔✔ PBO exceeds plan assets.
Assume that at the beginning of the current year, a company has a net gain-AOCI of $25,000,000.
At the same time, assume the PBO and the plan assets are $200,000,000 and $150,000,000,
respectively. The average remaining service period for the employees expected to receive benefits
is 10 years. What is the amount of amortization to pension expense for the year? - ✔✔ $500,000.
Explanation
[$25,000,000 − ($200,000,000 × 10%)]/10 = $500,000
Consider the following:
I. Present value of vested benefits at present pay levels.
II. Present value of nonvested benefits at present pay levels.
III. Present value of additional benefits related to projected pay increases.
, Which of the above constitutes the projected benefit obligation? - ✔✔ I, II, III.
Louie Company has a defined benefit pension plan. On December 31 (the end of the fiscal year),
the company received the PBO report from the actuary. The following information was included in
the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $8,000. The
discount rate applied by the actuary was 8%. What was the service cost for the year? - ✔✔
$12,000.
Explanation
Beginning PBO $100,000*
Service cost 12,000**
Interest cost 8,000 Retiree benefits paid (10,000) Ending PBO $110,000
*PBO, 1/1 = $8,000/8% = $100,000
**$110,000 + $10,000 − $8,000 − $100,000 =$12,000
Pension expense is decreased by: - ✔✔ Amortization of net gain.
Pension gains related to plan assets occur when: - ✔✔ The return on plan assets is higher than
expected.
The accounting for defined contribution pension plans is easy because each year: - ✔✔ The
employer records pension expense equal to the annual contribution.
The amortization of a net gain has what effect on pension expense? - ✔✔ Decreases it.
The following information pertains to Havana Corporation's defined benefit pension plan:
($ in 000s) 2018 2019
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A company's defined benefit pension plan had a PBO of $265,000 on January 1, 2018. During 2018,
pension benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service
cost for 2018 was $80,000. Plan assets (fair value) increased during the year by $45,000. The
amount of the PBO at December 31, 2018, was: - ✔✔ $331,500.
Explanation
PBO 1/1 $265,000
Service cost 80,000
Interest cost ($265,000 × 10%) 26,500
Benefits paid (40,000) PBO 12/31 $331,500
A net gain or loss affects the pension expense only if it exceeds an amount equal to what
percentage of the PBO or plan assets, whichever is higher? - ✔✔ 10%.
An underfunded pension plan means that the: - ✔✔ PBO exceeds plan assets.
Assume that at the beginning of the current year, a company has a net gain-AOCI of $25,000,000.
At the same time, assume the PBO and the plan assets are $200,000,000 and $150,000,000,
respectively. The average remaining service period for the employees expected to receive benefits
is 10 years. What is the amount of amortization to pension expense for the year? - ✔✔ $500,000.
Explanation
[$25,000,000 − ($200,000,000 × 10%)]/10 = $500,000
Consider the following:
I. Present value of vested benefits at present pay levels.
II. Present value of nonvested benefits at present pay levels.
III. Present value of additional benefits related to projected pay increases.
, Which of the above constitutes the projected benefit obligation? - ✔✔ I, II, III.
Louie Company has a defined benefit pension plan. On December 31 (the end of the fiscal year),
the company received the PBO report from the actuary. The following information was included in
the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $8,000. The
discount rate applied by the actuary was 8%. What was the service cost for the year? - ✔✔
$12,000.
Explanation
Beginning PBO $100,000*
Service cost 12,000**
Interest cost 8,000 Retiree benefits paid (10,000) Ending PBO $110,000
*PBO, 1/1 = $8,000/8% = $100,000
**$110,000 + $10,000 − $8,000 − $100,000 =$12,000
Pension expense is decreased by: - ✔✔ Amortization of net gain.
Pension gains related to plan assets occur when: - ✔✔ The return on plan assets is higher than
expected.
The accounting for defined contribution pension plans is easy because each year: - ✔✔ The
employer records pension expense equal to the annual contribution.
The amortization of a net gain has what effect on pension expense? - ✔✔ Decreases it.
The following information pertains to Havana Corporation's defined benefit pension plan:
($ in 000s) 2018 2019
beg bal beg bal
