Mapa Institute of Technology

FIL 11

Problem 15-1 Multiple choice

1)Which entities are required to apply deferred tax accounting?

1. 1. Public entities
   2. Nonpublic entities

1. 1. 1. I only
      2. II only
      3. Both I and II
      4. Neither I nor II

2. These are differences that will result in future taxable amount in determining taxable

profit of future periods when carrying amount of the asset or liability is recovered or settled.

1. Temporary Difference
2. Taxable Temporary Difference
3. Deductible Temporary Difference
4. Permanent Temporary Difference

3. These are differences that result in future deductible amount in determining taxable profit in future periods when the carrying amount of the asset or liability recovered or settled.

1. Taxable Temporary Differences
2. Deductible Temporary Differences
3. Taxable Temporary and Permanent Differences
4. Deductible Temporary and Permanent Differences

4. It is the deferred tax consequence attributable to a taxable temporary difference.

1. Deferred Tax Liability
2. Deferred Tax Asset
3. Current Tax Liability
4. Current Tax Asset

5. It is the deferred tax consequence attributable to a deductible temporary difference

and operating loss carry forward.

1. Deferred Tax Liability
2. Deferred Tax Liability
3. Current Tax Liability
4. Current Tax Asset

6. It is the profit for a period before deducting tax expense.

1. Accounting Profit
2. Taxable Profit
3. Gross Profit
4. Net Profit

7. It is the aggregate amount included in the determination of net profit for the period in

respect of current tax and deferred tax.

1. Tax Expense
2. Current Tax Expense
3. Deferred Tax Expense
4. Deferred Tax Benefit

8. It is the profit for a period determined in accordance with the rules established by taxation authorities upon which income taxes are payable.

1. Accounting Profit
2. Taxable Profit
3. Net Profit
4. Accounting profit subject to tax

9. It is the amount of income tax payable in respect of taxable profit.

1. Current Tax Expense
2. Total income tax expense
3. Deferred Tax Expense
4. Deferred Tax Benefit

10. The deferred tax expense is equal to

1. Increase in deferred tax asset less increase in deferred tax liability.
2. Increase in deferred tax liability less increase in deferred tax asset.
3. Increase in deferred tax asset.
4. Increase in deferred tax liability.

Problem 15-2 Multiple Choice

1. It is the amount attributable to an asset or liability for tax purposes.
   1. Carrying Amount
   2. Tax Base
   3. Measurement Base
   4. Taxable Amount

2. A deferred tax liability shall be recognized for all

1. 1. Permanent Differences
   2. Temporary Differences
   3. Taxable Temporary Differences
   4. Deductible Temporary Difference

3. A deferred tax asset shall be recognized for all deductible temporary differences and

operating loss carry forward.

1. 1. It is probable that taxable income will be available against within the deferred tax asset can be used.
   2. It is probable that accounting income will be available against which the deferred tax asset can be used.
   3. It is possible that taxable income will be available against which the deferred tax asset can be used.
   4. It is possible that accounting income will be available against which the deferred tax asset can be used.

4. An entity shall offset a deferred tax asset and deferred tax liability when

1. The deferred tax asset and deferred tax liability relate to income taxes levied by the same taxing authority.

2. The entity has a legal enforceable right to offset a current tax asset against a current tax liability.

1. 1. I only
   2. II only

1. 3. Both I and II
   4. Neither I nor II

5. Which of the following statements is incorrect concerning tax assets and liabilities?

1. 1. Deferred tax assets and liabilities shall be discounted.
   2. Tax assets and liabilities shall be presented separately from other assets and liabilities in the statement of financial position.
   3. Deferred tax assets and liabilities shall be distinguished from current tax assets and liabilities.
   4. When an entity makes a distinction between current and noncurrent assets and liabilities, it shall not classify deferred tax assets and liabilities, it shall not classify deferred tax assets and liabilities as current.

Problem 15-3 Multiple Choice

1. Which of the following statements in relation to deferred tax assets or liabilities is

true?

1. 1. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary.

1. 2. Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of deductible permanent differences.

1. 1. 1. I only
      2. II only
      3. Both I and II
      4. Neither I nor II

2. Deferred tax assets are the amount of income taxes in future periods in respect of

1. Carry forward of unused tax losses only
2. Taxable temporary differences and carry forward of unused tax losses
3. Deductible temporary diffences and carry forward of unused tax losses
4. Permanent differences

3. All of the following must be disclosed separately, except?

1. The tax bases of major items on which deferred tax has been included.
2. The amount of deductible temporary differences for which no deferred tax asset is recognized.
3. The amount of taxable temporary differences associated with investments in subsidiaries and associates for which no deferred
4. The amount of income tax relating to each component of other comprehensive income.

4. Which of the following statements in relation to deductible temporary differences is

true?

1. 1. Interest expense accrued but included in taxable profit on cash basis shall be included under deductible temporary difference.

1. 2. Where accumulated depreciation on an asset is greater than accumulated tax depreciation, the amount shall be classified under deductible temporary differences.

1. 1. 1. I only
      2. II only
      3. Both I and II
      4. Neither I nor II

5. Which of the following statement is true in relation to deferred tax?

1. 1. Development costs have been capitalized and amortized but were deducted in determining taxable profit in period in which they were incurred.

1. 2. The tax base for a machine for tax purposes is greater than the carrying amount in the financial statements up to the end of reporting period. This will give rise

to

a deferred tax asset.

1. I only
2. II only
3. Both I and II
4. Neither I nor II

Problem 15-4 Multiple choice

1. Justification for the method of determining periodic deferred tax expense is based on the concept of

1. 1. Matching of periodic expense to periodic revenue.
   2. Objectivity in calculation of periodic expense.
   3. Recognition of assets and liabilities.
   4. Consistency of tax expense measurement with actual tax planning strategies.

2. Which of the following differences would result in future taxable amount?

1. 1. Expenses or losses that are deductible after they are recognized in accounting income.
   2. Revenues or gains that are taxable before they are recognized in accounting income.
   3. Expenses or losses that are deductible before they are recognized in accounting income.
   4. Revenues or gains that are recognized in accounting income but are never included in taxable income.

3. A temporary difference which would result in a deferred tax liability is

1. 1. Interest revenue on municipal bonds.
   2. Accrual of warranty expense.
   3. Excess tax depreciation over accounting depreciation.
   4. Subscription received in advance.

4. A temporary difference which would result in a deferred tax asset is

1. 1. Tax, penalty or surcharge
   2. Dividend received on share investment.
   3. Excess tax depreciation over accounting depreciation.
   4. Rent received in advance included in taxable income at the time of receipt but deferred for accounting purposes.

5. An entity, cash basis taxpayer, prepares accrual basis financial statements. In its year-end statement of financial position, the entity’s deferred tax liabilities increased compared to the prior year. Which of the following changes would cause this increase in deferred tax liabilities?

1. An increase in prepaid insurance
2. An increase in rent receivable
3. An increase in warranty obligation

1. I only
2. II only
3. II and III only
4. III only

6. An entity reported deferred tax assets and deferred tax liabilities at the end of the current year. For the current year, the entity should report deferred income tax expense or benefit equal to the

1. 1. Decrease in the deferred tax assets
   2. Increase in the deferred tax liabilities
   3. Amount of the current liability plus the sum of the changes in deferred tax assets and deferred tax liabilities
   4. Sum of the net changes in deferred tax assets and deferred tax liabilities

7. Because an entity uses different methods to depreciate equipment for accounting and income tax purposes, the entity has temporary differences that will reverse during the next year and add to taxable income. Deferred income taxes that are based on these temporary differences shall be classified in the entity’s statement of financial position as

1. 1. Contra account to current assets
   2. Contra account to noncurrent assets
   3. Current liability
   4. Noncurrent liability

8. At the current year-end, an entity had a deferred tax liability arising from accelerated depreciation that exceeded a deferred asset relating to rent received in advance which is expected to reverse in the next year. Which of the following shall be reported in the entity’s current year-end statement of financial position?

1. 1. The excess of the deferred tax liability over the deferred tax asset as a noncurrent liability.
   2. The excess of the deferred tax liability over the deferred tax asset as a current liability.
   3. The deferred tax liability as a noncurrent liability.
   4. The deferred tax liability as a current liability.

9. The financial reporting basis of a plant asset exceeded the tax basis because a

different method of reporting depreciation is used for financial accounting purpose and tax purposes. What is reported if there are no other temporary differences?

1. 1. Current tax asset
   2. Deferred tax asset
   3. Deferred tax liability
   4. Current tax payable

10. A deferred tax liability is computed using

1. 1. Current tax law regardless of expected or enacted future law
   2. Expected future tax law regardless of whether enacted or not
   3. Current tax law unless a future enacted tax law is different
   4. Either current or expected future tax law regardless of whether the expected future tax law is enacted or not.

Problem 15-5 Multiple Choice

1. The purpose of inter-period tax allocation is to

1. 1. Allow reporting entities to fully utilize tax losses carried forward from a previous year.
   2. Allow reporting entities whose tax liabilities vary significantly from year to year to smooth payments to taxing agencies.
   3. Recognize an asset or liability for the tax consequences of temporary differences that exist at the end of the reporting period.
   4. Amortize the deferred tax liability shown on the statement of financial position.

2. The result of inter-period tax allocation is that

1. 1. Wide fluctuations in an entity’s tax liability payments are eliminated.
   2. Tax expense shown in the income statement is equal to the deferred taxes shown

in the statement of financial position.

1. 3. Tax liability shown in the statement of financial position is equal to the deferred

taxes shown in the statement of financial position plus the income tax expense shown in the income statement.

1. 4. Tax expense shown in the income statement is equal to income taxes payable

for

the current year plus or minus the change in the deferred tax asset or liability balances for the year.

3. Which of the following is an example of a temporary difference that would result in a deferred tax liability?

1. 1. Use of straight line depreciation for accounting purposes and an accelerated rate for income tax purposes.
   2. Rent revenue collected in advance when included in taxable income before it is included in pretax accounting income.

1. 3. Use of a shorter depreciation period for accounting purposes than is used for income tax purposes.
   4. Investment losses recognized earlier for accounting purposes than for tax purposes.

4. Which of the following is the most likely item to result in a deferred tax asset?

for

1. 1. Using accelerated depreciation for tax purposes but straight line depreciation

accounting purposes.

1. 2. Using the cost recovery method of recognizing construction revenue for tax purposes but using percentage of completion method for financial reporting purposes.
   3. Prepaid expense
   4. Unearned revenue

5. An example of deductible temporary difference occurs when

1. 1. The installment sales method is used for tax purposes but the accrual method of recognizing sales revenue is used for financial accounting purposes.
   2. Accelerated depreciation is used for tax purposes but straight line depreciation

is

used for accounting purposes.

1. 3. Warranty expenses are recognized on the accrual basis for financial accounting purposes but recognized for tax purposes as the warranty conditions are met.
   4. The cost recovery method of recognizing construction revenue is used for tax purposes but the percentage of completion method is used for financial accounting purposes.

6. A deferred tax liability arising from the use of an accelerated method of depreciation

for tax purposes and the straight line method for financial reporting purposes would be classified as

1. 1. A current liability.
   2. A noncurrent liability.
   3. A noncurrent liability for the portion of the temporary difference reversing within a year and a noncurrent liability for the remainder.
   4. An offset to the accumulated depreciation.

7. An item that would create a permanent difference in pretax financial and taxable income would be

for

1. 1. Using accelerated depreciation for tax purposes and straight line depreciation

book purposes.

1. 2. Purchasing equipment previously leased with an operating lease in prior years.
   3. Using the percentage of completion method on long-term construction

contracts.

1. 4. Paying fines for violation of laws.

8. Recognizing tax benefits in a loss year due to a loss carry forward requires

1. 1. Only a footnote disclosure.
   2. Creating a new carry forward for the next year.
   3. Creating a deferred tax asset.
   4. Creating a deferred tax liability.

9. Intraperiodtax allocation

1. 1. Involves the allocation of income taxes between current and future periods.
   2. Associates tax effect with different items in the income statement.
   3. Arises because certain revenue and expenses appear in the financial statements either before or after they are included in the income tax return.

d.Arises because different income statement items are taxed at different rates.

10. In computing the change in deferred tax asset or liability, which of the following tax rate is used?

1. 1. Current tax rate
   2. Estimated future tax rate
   3. Enacted future tax rate
   4. Past years’ tax rate

Problem 15-6 Multiple choice

1. All of the following would require intraperiod tax allocation, except

1. 1. Discontinued operation
   2. Prior period error
   3. Change in accounting income
   4. Income from continuing operations

2. Income tax expense should be allocated to all of the following, except

1. 1. Discontinued operations
   2. Prior period error
   3. Gross profit
   4. Other comprehensive income

3. Taxable income
   1. Differs from accounting income due to differences in interperiodtax allocation
   2. Differs from accounting income due to differences in interperiodtax allocation and permanent differences.
   3. Is based on international financial reporting standards.
   4. Is reported in income statement.

4. Which of the following statements is true about intraperiod tax allocation?

1. 1. It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return.
   2. It is required for the cumulative effect of accounting changes but not for prior period errors.
   3. The purpose is to allocate income tax expense evenly over a number of accounting periods.
   4. The purpose is to relate the income tax expense to the items which affect the amount of tax.

5. Which of the following statements is correct about the presentation of deferred tax

assets and liabilities?

1. 1. Current deferred tax assets are netted against current deferred tax liabilities.
   2. All noncurrent deferred tax assets are netted against noncurrent deferred tax liabilities.
   3. Deferred tax assets are never netted against deferred tax liabilities.
   4. Deferred tax assets are netted against deferred tax liabilities if they relate to the same tax authority.

Problem 16-1 Multiple choice

1. These are all forms of consideration given by an entity in exchange for services rendered by employees

1. 1. Employee benefits
   2. Employee compensation
   3. Fringe benefits
   4. Salaries and wages

2. These are employee benefits which are payable after completion of employment

1. 1. Short-term employee benefits
   2. Postemployment employee benefits
   3. Other long-term employee benefits
   4. Termination benefits

3. Postemployment employee benefits include all of the following, except

1. 1. Long-term disability benefits
   2. Retirement benefits, such as pensions
   3. Postemployment life insurance
   4. Postemployment medical care

4. It is a benefit plan under which an entity pays a fixed contribution into a separate fund and will have no legal or constructive obligation to pay further contribution if

the fund becomes insufficient to pay employee benefits

1. 1. Postemployment benefit plan
   2. Defined contribution plan
   3. Defined benefit plan
   4. Multiemployer plan

5. Which is incorrect concerning the recognition and measurement of a defined contribution plan?

1. 1. The contribution shall be recognized as expense in the period it is payable.
   2. Any unpaid contributions at the end of the period shall be recognized as accrued

liability.

1. 3. Any excess contribution shall be recognized as prepaid expense but only to the extent that the prepayment will lead to a reduction in future payments or a cash refund.
   4. An entity shall not disclose the amount recognized as expense for a defined contribution plan.

6. Which is incorrect concerning the recognition and measurement of a defined benefit plan?

1. 1. Actuarial assumptions are required to measure the obligation and expense and there is a possibility of actuarial gains and losses.
   2. The obligation is measured on a discounted basis.
   3. The defined benefit plan must be fully funded.
   4. The expense recognized for a defined benefit plan is not necessarily the amount

of contribution due for the period.

7. What is the mandated method of determining the present value of the defined benefit

obligation?

1. 1. Projected unit credit method
   2. Entry age normal method
   3. Individual level premium method
   4. Aggregate method

8. A multiemployer plan is defined as

1. 1. A defined contribution plan or a defined benefit plan.
   2. A defined contribution plan that pools the assets contributed by various entities.
   3. A defined benefit plan that provides benefits to employees of more than one entity.
   4. A defined contribution plan or defined benefit plan that pools the assets contributed by various entities that are not under common control and uses those assets to provide benefits to employees of more than one entity.

9. What is a postemployment benefit plan under the Philippine law?

1. 1. Social Security System only

b. R.A 7641

c. Both Social Security System and R.A 7641

d. Neither Social Security System nor R.A 7641

10. When an entity pays insurance premiums to fund a postemployment benefit plan and the entity has no legal or constructive obligation on the policy, the postemployment benefit plan shall be treated as

1. 1. Defined contribution plan
   2. Defined benefit plan
   3. Either defined contribution plan or defined benefit plan
   4. Multiemployer plan

Problem 16-2 Multiple choice

1. The components of defined benefit cost include all of the following, except

1. 1. Service cost
   2. Net interest
   3. Remeasurements
   4. Contribution to the plan

2. The service cost of a defined benefit plan comprises all of the following, except

1. 1. Current service cost
   2. Past service cost
   3. Gain or loss on settlement
   4. Net interest

3. Which of the following components of defined benefit cost shall be recognized through other comprehensive income?

1. 1. Service cost
   2. Past service cost
   3. Net Interest
   4. Remeasurements

4. It is the increase in the present value of the defined benefit obligation resulting from

employee service in the current period

1. 1. Current service cost
   2. Interest expense
   3. Past service cost
   4. Remeasurements

5. It is the increase in the present value of the defined benefit obligation of employee service in prior periods, resulting from a plan amendment or curtailment

1. 1. Current service cost
   2. Net interest

1. 3. Past service cost
   4. Employee benefit cost

6. Which of the following statements is true in relation to the recognition of past service cost?

1. 1. Vested and unvested past service cost shall be amortized over the remaining vesting period.
   2. Vested and unvested past service cost shall be recognized as expense and unvested past service cost shall be amortized over the remaining vesting period.
   3. Vested and unvested past service cost shall be recognized in retained earnings.
   4. Vested and unvested past service cost shall be expensed immediately.

7. What is the meaning of “net interest” in relation to a defined benefit cost?

1. 1. Interest expense on defined benefit liability.
   2. Interest income on the fair value of plan assets.
   3. The difference between interest expense on defined benefit liability and interest income of the fair value of plan assets.
   4. Interest expense on defined benefit liability less applicable income tax.

8. Which of the following should be included in plan assets?

1. 1. Assets held by a long-term employee benefit fund
   2. Qualifying insurance policy
   3. Both assets held by a long-term employee benefit fund and qualifying insurance

policy.

1. 4. Neither assets held by a long-term employee benefit fund nor qualifying insurance policy.

9. Plan assets are held by a long-term benefit fund and must satisfy the following conditions, except

1. 1. The assets are held by an entity, the fund itself that is legally separate from the reporting entity.
   2. The assets in the fund are available to pay only employee benefits
   3. The assets in the fund are not available to the reporting entity’s own creditors.
   4. The assets in the fund can be returned to the entity even if the remaining assets are insufficient to meet all employee benefit obligation.

10. It is an insurance policy issued by an insurer that is not a related party of the reporting entity and the proceeds of the policy can be used only to pay or fund employee benefits under a defined benefit plan

1. 1. Qualifying insurance policy
   2. Aggregate policy

1. 3. Annuity
   4. Unconditional insurance policy

Problem 16-3 Multiple Choice

1. These are the entity’s best estimate of the variable that will determine the ultimate cost of providing postemployment benefits.

1. 1. Actuarial assumption
   2. Demographic assumption
   3. Financial assumption
   4. Actuarial assumption

2. Which of the following statements is incorrect concerning the actuarial assumption?

1. 1. Actuarial assumptions shall be unbiased and mutually compatible
   2. Actuarial assumptions are unbiased if they are neither imprudent nor excessively conservative
   3. Actuarial assumptions comprise of demographic assumptions and financial assumptions
   4. Postemployment benefit obligations shall be measured on a basis that reflects current salary and ignores future salary

3. The discount used in making actuarial assumptions shall be determined by reference to

0. 1. Market yield at the end of reporting period on high quality bonds
1. Stated rate on high quality bonds
2. Market yield at the end of reporting period on government bonds
3. Stated rate on government bonds

4. These are the changes in the present value of the defined benefit obligation resulting from experience adjustments and the effects of changes in actuarial assumptions

1. 1. Actuarial gains and losses
   2. Actual gains and losses
   3. Actual return on plan assets
   4. Gains and losses

5. Demographic actuarial assumptions include all of the following, except

1. 1. Rate of employee turnover
   2. Disability and early retirement
   3. The proportion of plan members eligible for benefits
   4. Discount rate

6. Financial actuarial assumptions include all of the following, except

1. 1. Future salary
   2. Future medical salary
   3. Tax payable by the plan
   4. Claim rate under medical plan

7. Actuarial gains and losses may arises from all of the following, except

1. 1. Unexpected high or low rate of employee turnover
   2. Change in assumptions concerning benefit payments
   3. Change in discount rate
   4. Change in the present value of the defined benefit obligation due to introduction, amendment, curtailment or settlement of the benefit plan

8. What is the treatment of actuarial gains and losses?

1. 1. As remeasurements recognized immediately in other comprehensive income and subsequently recycled to profit or loss
   2. As remeasurements recognized immediately in profit or loss
   3. As remeasurements recognized immediately in retained earnings
   4. As remeasurements recognized immediately in other comprehensive income and permanently excluded from profit or loss

9. What is the treatment of gain or loss on the settlement of benefit plan?

1. 1. As separate component of income from continuing operations
   2. As component of discounted operation
   3. As component of service cost included in determining employee benefit expense
   4. As component of other comprehensive income

10. What is the transitional effect of the application of PAS 19R on unamortized past service cost and unrecognized actuarial gain or loss?

1. 1. Unamortized past service cost and actuarial gain and loss are recognized currently in profit or loss.
   2. Unamortized past service cost and actuarial gain or loss are recognized currently in other comprehensive income
   3. Unamortized past service cost is recognized retrospectively in retained earnings and actuarial gain and loss are recognized currently in profit or loss.
   4. Unamortized past service cost and actuarial gain or loss are recognized retrospectively in retained earnings.

Problem16-4 Multiple choice

1. An entity contributes to an industrial pension plan that provides a pension arrangement for the employees. A large number of other employers also contribute to the pension plan, and the entity makes contributions in respect of each employee. These contributions are kept separate from corporate assets and are used together with any investment income to purchase annuities for retired employees. The only obligation of the entity is to pay the annual contributions. This pension scheme is a

1. 1. Multiemployer plan and a defined contribution scheme
   2. Multiemployer plan and a defined benefit scheme
   3. Defined contribution plan only
   4. Defined benefit plan only

2. An entity has decided to improve its defined benefit pension scheme. The benefit payable will be determined by reference to 60 years of service rather than 65 years of service. As a result, the defined benefit pension liability will increase. The average remaining service lives of the employees is 10 years. How should the increase in the pension liability be treated in the financial statements?

1. 1. The past service cost should be charged against retained profit
   2. The past service cost should be charged against profit or loss for the year
   3. The past service cost should be spread over the remaining working lives of the employees
   4. The past service cost should not be recognized

3. An entity operates a defined benefit plan and changes it to a defined contribution plan. The net pension liability after the amendment decreased compared to the net pension liability before the amendment. How should the entity account for this change?

1. 1. The entity recognizes gain
   2. The entity does not recognize gain
   3. The entity recognizes a gain to be amortized overt the remaining service period of the employees
   4. The entity recognizes the gain as component of other comprehensive income

4. Which of these events will not cause a change in a defined benefit obligation

1. 1. Change in mortality rate or the proportion of employees taking early retirement
   2. Change in the estimated salaries or benefits that will occur in the future
   3. Change in the estimated employee turnover
   4. Change in the return on plan assets

5. Under which category should lump sum benefit and actuarial gains be accounted for?

1. 1. Lump sum benefit and actuarial gains should be accounted for under defined benefit plans
   2. Lump sum benefit should be accounted for under short term employee benefits. Actuarial gains should be accounted for under defined benefit plans
   3. Lump sum benefit should be accounted for under defined benefit plans.

Actuarial gains should be accounted for under defined contribution plans

1. 4. Lump sum benefit should be accounted for under short term employee benefits. Actuarial gains should be accounted for under defined contribution plans

Problem 16-5 Multiple choice

1. Which of the following statements characterizes defined contribution plans?

1. 1. Defined contribution plans are more complex
   2. The employer’s obligation is satisfied by making the appropriate amount of periodic contribution
   3. The investment risk is borne by the employer
   4. Contribution are made in equal amounts by employer and employees

2. Which of the following statements characterizes defined

1. 1. Define benefit plans are comparatively simple in construction and raise few accounting issues for employers
   2. Retirement benefits are based on the plans benefit formula
   3. Retirement benefits depend on how well pension fund asstes have been managed
   4. The investment risk is borne by the employee

3. Which of the following components should not be included in the calculation of net pension cost recognized for a period by an employer sponsoring a defined benefit plan?

1. 1. Current service cost
   2. Past service cost
   3. Net interest
   4. Benefit plan

4. In a defined benefit plan, the process of funding refers to

1. 1. Determining the defined benefit obligation
   2. Determining the accumulated benefit obligation
   3. Making the periodic contributions to a funding agency to ensure that funds are available to meet retirees’ claims
   4. Determining the amount that might be reported for pension expense

5. The defined benefit obligation is the measure of pension obligation that

1. 1. Is required to be used for reporting the current service cost component of pension expense
   2. Requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary level
   3. Requires the longest possible period for funding to maximize the tax deduction
   4. Is not sanctioned under international financial reporting standards for reporting the current service cost component of pension expense

6. In computing the current service cost component of pension expense

1. 1. The accumulated benefit obligation provides a more realistic measure of the pension obligation on a going concern basis
   2. An entity should employ an actuarial funding method to report pension expense that best reflects the cost of benefit to employees

1. 3. The defined benefit obligation using future compensation level provides a realistic measure of present pension obligation and expenses
   4. All of these

7. When an entity amends a pension plan, past service cost should be

1. 1. Treated as a prior period adjustment because no future periods are benefited
   2. Amortized over the remaining service period of employees
   3. Recoded in other comprehensive income
   4. Reported as an expense in the period the plan is amended

8. Vested benefits

1. 1. Usually require a certain minimum number of years of service
   2. Are those that the employee is entitled to receive even if fired
   3. Are not contingent upon additional service under the plan
   4. Are defined by all of these

9. A pension liability is reposted when

1. 1. The defined benefit obligation exceeds the fair value of plan assets
   2. The accumulated benefit obligation is less than the fair value of plan assets
   3. The pension expense reported for the period is greater than the funding amount for the same period
   4. Cumulative other comprehensive income exceeds the fair value of plan assets

10. A pension asset is reported when

1. 1. The accumulated benefit obligation exceeds fair value of plan assets
   2. The accumulated benefit obligation exceeds the fair value of plan assets but a past service cost exists
   3. Plan assets at fair value exceed the accumulated benefit obligation
   4. Plan assets at fair value exceed the defined benefit obligation

Problem 16-6 Multiple choice

1. In accounting for a defined benefit plan

1. 1. An appropriate funding must be established to ensure that enough fund would be available at retirement
   2. The employer responsibility is simply to make a contribution each year
   3. The expense recognized each period is equal to the cash contribution to the plan
   4. The liability is determined based upon variable that reflect current salary levels

2. The formula in a defined benefit plan

1. 1. Requires that the benefit of gain or the risk of loss from the assets contributed to the plan should be borne by the employee
   2. Define the benefits that the employee will receive at the time of retirement
   3. Requires that the defined benefit cost and funding must the same
   4. Defines the contribution to be made by the employer and no promise is made concerning the ultimate benefits to be paid out to the employees

3. Which of the following is not a characteristic of a defined contribution plan
   1. The employer contribution each period is based on a formula
   2. The benefit to be received are usually determined by an employee’s highest salary

1. 3. The accounting for a defined contribution plan is straightforward and uncomplicated
   4. The benefit of gain or the risk of loss from the assets contributed to the plan are borne by the employee

4. A formula in a defined contribution plan

1. 1. Define the benefit that the employee will receive at the time of retirement
   2. Ensures that the defined benefit cost and funding are different
   3. Requires an employer to contribute a certain sum each period based on the formula
   4. Ensures that enough fund would be available at retirement

5. Which measure requires the use of future salaries in the computation of benefit obligation?

1. 1. Vested benefit obligation
   2. Accumulated benefit obligation
   3. Projected benefit obligation
   4. Current benefit obligation

6. In determining the present value of the projected benefit obligation, all of the following should be considered, except

1. 1. Retirement and mortality rate
   2. Discount rate
   3. Benefit formula of the plan
   4. Actual return on plan assets

7. The interest on the projected benefit obligation

1. 1. Reflect the incremental borrowing rate of the employer
   2. Reflect the rate at which retirement benefit could be effectively settled
   3. Is the same as the actual return on plan assets
   4. May be stated implicitly or explicitly

8. The return on plan assets

1. 1. Is equal to the change in the fair value of the plan assets during the year.
   2. Includes interest, dividends and change in fair value of the plan assets.
   3. Is equal to the discount rate times the fair value of the plan assets at the beginning of the period.
   4. Is equal to the expected rate of return times the fair value of the plan assets at the beginning of the period.

9. In accounting for defined benefit plan, any difference between the defined benefit cost and the contribution to the plan should be reported as

1. 1. An offset to the liability for the past service cost.
   2. Pension asset or pension liability.
   3. Other comprehensive income.
   4. Component of retained earnings.