Bakersfield College

ACG 2021

1)The three components of pension expense that are present most often are:

1. 1. Service cost, prior service cost, and gain on plan assets.
   2. Service cost, interest cost, and gain from revisions in pension liability.
   3. Service cost, contribution cost, and prior service cost.
   4. Service cost, interest cost, and expected return on plan assets.

 

 

 

2. The pension expense includes periodic changes that occur:
   1. In the PBO.
   2. In the PBO and the plan assets.
   3. In the plan assets.
   4. In the PBO and the ABO.

 

 

 

3. Which of the following is true?
   1. A projected benefits approach is used to determine the periodic pension expense.
   2. An accumulated benefits approach is used to determine the periodic pension expense.
   3. A vested benefits approach is used to determine the periodic pension expense.
   4. The pension expense is unrelated to the pension obligation.

 

 

 

4. The component of pension expense that results from amending a pension plan to give recognition to previous service of currently enrolled employees is the amortization of:
   1. Prior service costs.
   2. Amendment costs.
   3. Retiree service costs.
   4. Transition costs.

 

 

 

5. When accounting for pensions, delayed recognition of gains and losses in earnings achieves:
   1. Income averaging.
   2. Expense averaging.
   3. Income optimization.
   4. Income smoothing.

 

 

 

6. Which of the following is not a potential component of pension expense?
   1. Return on plan assets.
   2. Prior service cost.
   3. Retiree benefits paid.
   4. Gains and losses.

 

 

 

7. 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?

a.     5%.

b.     10%.

c.     15%.

d.     20%.

 

 

 

8. Pension gains related to plan assets occur when:
   1. The return on plan assets is higher than expected.
   2. The vested benefit obligation is less than expected.
   3. Retiree benefits paid out are less than expected.
   4. The accumulated benefit obligation is more than expected.

 

 

 

9. The amortization of a net gain has what effect on pension expense?
   1. Decreases it.
   2. Has no effect on it.
   3. Increases it (but only by the amount over 10% of the PBO).
   4. Increases it (regardless of the amount).

 

 

 

10. 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? a. $3,000,000.

b.    $ 500,000.

c.    $2,500,000.

d.    $1,500,000.

 

 

 

11. Assume that at the beginning of the current year, a company has a net gain–AOCI of

$60,000,000. At the same time, assume the PBO and the plan assets are $300,000,000 and

$450,000,000, 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? a. $ 6,000,000.

b.    $15,000,000.

c.    $ 1,500,000.

d.    $ 7,500,000.

 

 

 

12. Amortizing prior service cost for pension plans will:
    1. Decrease assets.
    2. Increase liabilities.
    3. Increase shareholders' equity.
    4. Decrease retained earnings.

 

 

 

13. Scallion Company received the following reports of its defined benefit pension plan for the current calendar year:

 

PBO		Plan assets
Balance, January 1	$400,000	Balance, January 1	$250,000
Service cost	195,000	Actual return	30,000
Interest cost	32,000	Annual contribution	110,000
Benefits paid	(80,000)	Benefits paid	(80,000)
Balance, December 31	$547,000	Balance, December 31	$310,000

 

The long-term expected rate of return on plan assets is 10%. Assuming no other data are relevant, what is the pension expense for the year?

a.     $197,000.

b.     $227,000.

c.     $172,000.

d.     $202,000.

 

 

 

14. Fox Company received the following reports of its defined benefit pension plan for the current calendar year:

 

PBO		Plan assets
Balance, January 1	$600,000	Balance, January 1	$500,000
Service cost	360,000	Actual return	50,000
Interest cost	64,000	Annual contribution	220,000
Benefits paid	(90,000)	Benefits paid	(90,000)
Balance, December 31	$934,000	Balance, December 31	$680,000

 

The long-term expected rate of return on plan assets is 8%. Assuming no other data are relevant, what is the pension expense for the year?

a.     $384,000.

b.     $360,000.

c.     $424,000.

d.     $374,000.

 

 

 

15. The following information is related to the defined benefit pension plan of Dreamworld Company

for the year:

 

Service cost	$60,000
Contributions to pension plan	110,000
Benefits paid to retirees	150,000
Plan assets (fair value), January 1	640,000
Plan assets (fair value), December 31	750,000
Actual return on plan assets	150,000
PBO, January 1	900,000
PBO, December 31	960,000
Discount rate	10%
Long-term expected return on plan assets	9%

 

Assuming no other relevant data exist, what is the pension expense for the year? a.         $190,000.

b.     $ 92,400.

c.     $ 60,000.

d.     $170,000.

 

 

 

 

 

16. The following information is related to the defined benefit pension plan of Simpson Company for the year:

 

Service cost	$ 90,000
Contributions to pension plan	140,000
Benefits paid to retirees	110,000
Plan assets (fair value), January 1	540,000
Plan assets (fair value), December 31	650,000
Actual return on plan assets	80,000
PBO, January 1	800,000
PBO, December 31	870,000
Discount rate	10%
Long-term expected return on plan assets	9%

 

Assuming no other relevant data exist, what is the pension expense for the year? a.    $ 90,000.

b.     $230,600.

c.     $121,400.

d.     $154,000.

 

 

 

 

 

 

17. Colombo Enterprises has a defined benefit pension plan. At the end of the reporting year, the following data were available: beginning PBO, $75,000; service cost, $14,000; interest cost,

$6,000; benefits paid for the year, $9,000; ending PBO, $89,000; and the expected return on plan assets, $10,000. There were no other pension-related costs. The journal entry to record the annual pension costs will include a debit to pension expense for:

a.     $20,000.

b.     $15,000.

c.     $12,000.

d.     $10,000.

 

 

 

 

 

 

Use the following to answer questions :

 

The following incomplete (columns have missing amounts) pension spreadsheet is for the current year for First Republic Corporation (FRC).

 

($ in millions)	PBO	Plan	Prior	Net	Pension	Cash	Net
Debit (Credit)		Assets	Service	(Gain)/	Expense		Pension