Bakersfield College

ACG 2021

Use the following to answer questions:

The following refers to the pension spreadsheet (columns have missing amounts) for the current year for Pancho Villa Enterprises (PVE).

Retiree benefits paid                                                                                                                                                       

Ending balance                    (530)                              54               122

1)What was PVE's pension expense for the year? a.         $250.

b.     $50.

c.     $68.

d.     $62.

2. What was the PBO at the beginning of the year? a.  $160.

b.     $400.

c.     $500.

d.     $610.

3. What were the retiree benefits paid?

a.     $45.

b.     $50.

c.     $55.

d.     $60.

4. Which of the following is a correct statement concerning the reporting of the pension plan on the face of the employer’s balance sheet?
   1. Only the plan assets are separately reported.
   2. Only the PBO is separately reported.
   3. Both the PBO and the plan assets are separately reported.
   4. Neither the PBO nor the plan assets is separately reported.

5. Recording pension expense would usually:
   1. Increase the PBO.
   2. Increase current assets.
   3. Increase the prior service cost–AOCI.
   4. Increase the net loss–AOCI.

6. Accumulated other comprehensive income:
   1. Is a liability.
   2. Might include prior service cost.
   3. Includes accumulated pension expense.
   4. Is reported in the income statement.

7. A statement of comprehensive income does not include:
   1. Net income.
   2. Losses from the return on assets exceeding expectations.
   3. Losses from changes in estimates regarding the PBO.
   4. Prior service cost.

8. Amortizing prior service cost for pension plans will:
   1. Increase retained earnings and increase accumulated other comprehensive income.
   2. Decrease retained earnings and decrease accumulated other comprehensive income.
   3. Increase retained earnings and decrease accumulated other comprehensive income.
   4. Decrease retained earnings and increase accumulated other comprehensive income.

9. A statement of comprehensive income does not include:
   1. Gains from the return on pension assets exceeding expectations.
   2. Gains and losses on unsold held-to-maturity securities.
   3. Losses from the return on pension assets falling short of expectations.
   4. Prior service cost.

10. Gains and losses can occur with pension plans when:
    1. Either the PBO or the return on plan assets turns out to be different than expected.
    2. Either the ABO or the return on plan assets turns out to be different than expected.
    3. Either the PBO, the ABO, or the return on plan assets turns out to be different than expected.
    4. Either the PBO or the ABO turns out to be different than expected.

11. A gain from changing an estimate regarding the obligation for pension plans will:
    1. Increase assets.
    2. Increase liabilities.
    3. Decrease shareholders' equity.
    4. Increase shareholders' equity.

12. Castillo Company has a defined benefit pension plan. At the end of the reporting year, the following data were available: beginning PBO, $75,000; service cost, $18,000; interest cost,

$5,000; benefits paid for the year, $9,000; ending PBO, $89,000; the expected return on plan assets, $10,000; and cash deposited with pension trustee, $17,000. There were no other pension- related costs. The journal entry to record the annual pension costs will include a credit to the PBO for:

a.     $13,000.

b.     $17,000.

c.     $18,000.

d.     $23,000.

13. At December 31, 2015, Mongo, Inc., reported in its balance sheet a net loss of $3 million related to its pension plan. The actuary for Mongo at the end of 2016 increased her estimate of future salary levels. Mongo’s entry to record the effect of this change will include:
    1. A debit to loss–OCI and a credit to PBO.
    2. A debit to PBO and a credit to loss–OCI.
    3. A debit to pension expense and a credit to PBO.
    4. A debit to pension expense and a credit to loss–OCI.

14. JL Health Services reported a net loss–AOCI 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:

1. 1. The statement of comprehensive income will report a $6 million gain and a $24 million loss.
   2. The net pension liability will increase by $18 million.
   3. Accumulated other comprehensive income will increase by $18 million.
   4. The net pension liability will decrease by $24 million.

15. Amortizing a net loss for pensions will:
    1. Increase retained earnings and increase accumulated other comprehensive income.
    2. Decrease retained earnings and decrease accumulated other comprehensive income.
    3. Increase retained earnings and decrease accumulated other comprehensive income.
    4. Decrease retained earnings and increase accumulated other comprehensive income.

16. Amortizing a net gain for pensions and other postretirement benefit plans will:
    1. Increase retained earnings and increase accumulated other comprehensive income.
    2. Decrease retained earnings and decrease accumulated other comprehensive income.
    3. Increase retained earnings and decrease accumulated other comprehensive income.
    4. Decrease retained earnings and increase accumulated other comprehensive income.

17. Amortizing prior service cost for pensions and other postretirement benefit plans will:
    1. Decrease retained earnings.
    2. Increase assets.
    3. Decrease assets.
    4. Decrease shareholders' equity.

18. The key elements of a defined benefit pension plan include all of the following except:
    1. The pension expense.
    2. The plan assets.
    3. Amortized future benefits.
    4. The employer's obligation.

19. The net pension liability (PBO minus plan assets) is increased by:
    1. Service cost.
    2. Expected return on plan assets.
    3. Amortization of prior service cost.
    4. Cash contributions to plan assets.

20. The net pension liability (PBO minus plan assets) is decreased by:
    1. Service cost.
    2. Expected return on plan assets.
    3. Amortization of net gain–AOCI.
    4. Prior service cost.

Use the following to answer questions:

The following incomplete (columns have missing amounts) pension spreadsheet is for Old Tucson Corporation (OTC).

21. What was the prior service cost at the beginning of the year?

a.     $48.

b.     $54.

c.     $56.

d.     $60.

22. What is OTC's pension expense for the year?

a.     $78.

b.     $72.

c.     $66.

d.     $18.

23. What was the balance of the net pension asset / liability reported in the balance sheet at the end of the previous year?
    1. Net pension asset of $250.
    2. Net pension asset of $442.
    3. Net pension liability of $250.
    4. Net pension liability of $442.

24. Prior to 1993, postretirement benefits other than pensions generally were accounted for on the:
    1. Accrual basis.
    2. Cash basis.
    3. Modified accrual basis.
    4. Hybrid basis.