Bakersfield College

ACG 2021

1)Accounting for postretirement health care benefits is similar, in most respects, to accounting for:

1. 1. Payroll taxes.
   2. Health insurance costs for current employees.
   3. Pension benefits.
   4. Sick pay and vacation pay.

2. Eligibility for postretirement health care benefits usually is based on the employee's:
   1. Job title.
   2. Number of years in the profession.
   3. Number of years in the current position.
   4. Age and/or years of service.

3. Eligibility requirements and the nature of benefits for postretirement health care plans usually are specified in the:
   1. Written plan.
   2. Informal plan.
   3. Substantive plan.
   4. Severance plan.

4. Which of the following is not included among the assumptions needed to estimate postretirement health care benefits?
   1. Employee turnover.
   2. Expected retirement age of plan participants.

1. 3. Life expectancy of plan participants.
   4. Return on plan assets.

5. Which one of the following assumptions is needed to estimate both postretirement health care benefits and pension benefits?
   1. Per capita claims cost.
   2. Expected cost trend rate.
   3. Benefits provided by other governmental or private plans.
   4. Employee turnover.

6. The estimated medical costs are expected to be $7,500 during an employee's retirement. The retiree is expected to pay 30% of the cost and Medicare is expected to pay 50% of the cost. What is the company's estimated net cost of benefits?

a.     $5,250.

b.     $7,500.

c.     $1,500.

d.     $3,750.

7. With pensions, service cost reflects additional benefits employees earn from an additional year's service. The service cost for retiree health care plans is:
   1. An allocation to the current year of a portion of an estimated fixed total cost.
   2. An allocation to the current year of a portion of an existing liability.

1. 3. An amount earned by a defined benefit formula.
   4. The amount paid to retired employees.

8. Pension benefits and postretirement health benefits typically are similar in their:
   1. Application of present value concepts.
   2. Vesting policies.
   3. Coverage for eligible dependents.
   4. Relationship between cost of coverage and length of service.

9. A company's total obligation for postretirement benefits is measured by the:
   1. APBO.
   2. HMOP.
   3. HOBO.
   4. EPBO.

10. The process of assigning the cost of postretirement benefits to the years during which those benefits are assumed to be earned by employees is called:
    1. Restitution.
    2. Retribution.
    3. Attribution.
    4. Assignation.

11. The attribution period for postretirement benefits spans each year of service from the employee's date of hire to the employee's date of:
    1. Full eligibility.
    2. Death.
    3. Retirement.
    4. Termination.

12. The attribution period for postretirement health care plans does not include:
    1. The first five years of service.
    2. The year of hire.
    3. The employee probation period.
    4. The years of service beyond the full eligibility date.

13. If no estimates are changed and there is no net loss or gain or prior service cost, which of the following amounts related to an unfunded postretirement benefit plan will not increase with each additional year of service before the full eligibility date?
    1. Other comprehensive income.
    2. Postretirement benefit expense.
    3. APBO.
    4. EPBO.

14. The postretirement benefit obligation is the:
    1. Future value of the estimated benefits during retirement.
    2. Present value of the estimated benefits during retirement.
    3. Fair value of the estimated benefits during retirement.
    4. Actual value of estimated benefits during retirement.

15. The APBO increases each year by the:
    1. Interest accrued on the APBO and the portion of the EPBO attributed to that year.
    2. Interest accrued on the EPBO and the portion of the EPBO attributed to that year.
    3. Interest accrued on the APBO and the portion of the APBO attributed to that year
    4. Interest accrued on the EPBO and the portion of the APBO attributed to that year.

16. The attribution approach required by GAAP for postretirement health care plans is to assign:
    1. An equal fraction of the EPBO to each year the employee is on the company payroll.
    2. An equal fraction of the APBO to each year the employee is on the company payroll.
    3. An equal fraction of the APBO to each year of service from the employee's hire date to the employee's full eligibility date.
    4. An equal fraction of the EPBO to each year of service from the employee's hire date to the employee's full eligibility date.

17. The amount of cash paid annually for unfunded postretirement health benefit plans, assuming they are not independently insured, usually is equal to:
    1. The amount required by the actuarial formula.
    2. The present value of future benefits.
    3. The amount necessary to cover future benefits.
    4. The amount necessary to pay the current year's health care cost.

18. A company's postretirement health care benefit plan had an APBO of $265,000 on January 1, 2016. During 2016, retiree benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service cost for 2016 was $80,000. Plan assets (fair value) increased during the year by

$45,000. The amount of the APBO at December 31, 2016, was:

a.     $225,000.

b.     $305,000.

c.     $331,500.

d.     $371,500.

Use the following to answer questions

Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement.

Ralph Young was hired at the beginning of 1977 by Oregon after turning age 22 and is expected to retire at the end of 2018 (age 60). The discount rate is 4%. The plan is unfunded.

The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839. The PV of $1 where n = 2 and i = 4% is 0.92456

19. What is the present value of Ralph's net benefits as of his expected retirement date, rounded to the nearest dollar?

a.     $166,580.

b.     $222,368.

c.     $300,000.

d.     None of these answer choices is correct.

20. With respect to Ralph, what is Oregon's expected postretirement benefit obligation (EPBO) at the end of 2016, rounded to the nearest dollar?

a.     $137,045.

b.     $205,593.

c.     $246,810.

d.     $768,000.

21. With respect to Ralph, what is Oregon's accumulated postretirement benefit obligation (APBO) at the end of 2016, rounded to the nearest dollar?

a.     $130,544.

b.     $205,593.

c.     $195,050.

d.     None of these answer choices is correct.