Accounting For Pensions

CHAPTER 20
ACCOUNTING FOR PENSIONS

AND POSTRETIREMENT BENEFITS
IFRS questions are avaia!e at t"e en# o$ t"is %"a&ter'
TRUE(FA)SE*Con%e&tua
Ans+er No' Des%ri&tion
F 1. Funded pension plan.
T 2. Qualified pension plans.
F 3. Defined-contribution plan liability.
T 4. Defined-benefit plans.
T 5. Vested benefit obligation.
F 6. ccu!ulated benefit obligation.
F ". Definition of ser#ice cost.
T $. Definition of interest cost.
F %. &ecogni'ing accu!ulated benefit obligation.
T 1(. )ension sset *+iability balance.
F 11. )lan a!end!ent and pro,ected benefit obligation increase.
F 12. -ears-of-ser#ice a!orti'ation !et.od.
T 13. /0pected return and actual return.
F 14. 1ne0pected gains and losses.
T 15. ccu!ulated 234 56*+7 account and t.e corridor.
F 16. !orti'ation of net gains and losses.
T 1". &ecording prior ser#ice cost.
F 1$. &eporting accu!ulated 234 5)837 on t.e balance s.eet.
F 1%. 2t.er co!pre.ensi#e inco!e 5)837 and net inco!e.
T 2(. &econciliation of )92 and fair #alue of plan assets.
MU)TIP)E CHOICE*Con%e&tua
d 21. Factors considered by actuaries.
c 22. )rocess of funding a pension plan.
d 23. ccounting proble!s in pension plans.
c 24. :ature of a defined-contribution plan.
b 25. :ature of a defined-benefit plan.
b

26. Defined-contribution plan c.aracteristics.
a 2". ccounting for a defined-benefit plan.
c 2$. )ension obligation !easure!ent using future salaries.
a 2%. Definition of accu!ulated benefit obligation.
a 3(. )ro,ected benefit obligation as a !easure of pension obligation.
d 31. lternati#e !easures of t.e pension obligation.
d 32. 3.aracteristics of #ested benefits.
d 33. )ension funding and pension e0pense recognition.
a 34. 3o!ponents of pension e0pense.
c 35. 8er#ice cost calculated using future co!pensation le#els.
b 36. 8ettle!ent interest rates.
ccounting for )ensions and )ostretire!ent 9enefits
MU)TIP)E CHOICE*Con%e&tua ,%ont'-
a 3". :ature of plan assets.
b 3$. Definition of actual return on plan assets.
b 3%. )ension sset * +iability.
c 4(. 4te!s included in pension e0pense.
a 41. Definition of pension e0pense.
c 42. &ecognition of prior ser#ice costs.
c 43. !orti'ation of prior ser#ice costs.
b 44. !orti'ation !et.ods for prior ser#ice costs.
a 45. Defined-benefit plan a!end!ent.
d 46. 1ne0pected gains and losses.
b 4". &ecording gains and losses.
a 4$. 1se of fair #alue of plan asset.
a 4%. 6ain or loss caused by a plant closing.
a 5(. &eporting pension asset.
d 51. 4ntangible asset;deferred pension cost.
a 52. 4dentification of a balance s.eet account.
a 53. &ecognition of pension asset.
b 54. Disclosures of pension plan infor!ation.
c 55. Function of )ension 9enefit 6uaranty 3orporation.
c <56. )ostretire!ent .ealt. care benefits.
c <5". Disclosures of postretire!ent benefits.
c <5$. )ostretire!ent asset.
a <5%. )ostretire!ent benefits.
c <6(. ccrual period.
b <61. /0pected postretire!ent benefit obligation.
d <62. &ecognition of prior ser#ice cost.
b <63. 4te! not recogni'ed.

<T.is topic is dealt =it. in an ppendi0 to t.e c.apter.
MU)TIP)E CHOICE*Co.&utationa
d 64. 3alculate pension e0pense.
c 65. 3alculate pension e0pense.
a 66. 3alculate pension e0pense.
b 6". 3alculate pension e0pense.
a 6$. Deter!ine pension e0pense.
a 6%. Deter!ine pension liability to be reported.
b "(. Deter!ine a!orti'ation of gain * loss.
d "1. 3alculate pension e0pense.
d "2. 3alculate pension e0pense.
b "3. 3alculate pension e0pense.
b "4. 3alculate actual return on plan assets.
a "5. 3alculate une0pected gain on plan assets.
d "6. 3alculate net loss a!orti'ation.
2(-2
b "". 3alculate pro,ected benefit obligation balance.
c "$. 3alculate fair #alue of plan assets.
b "%. 3alculate a!orti'ation of prior ser#ice cost.
c $(. 3alculate interest cost.
b $1. Deter!ine actual return on plan assets.
c $2. 3alculate t.e une0pected gain on plan assets.
b $3. Deter!ine t.e corridor.
b $4. 3alculate a!orti'ation of net gain.
a $5. 3alculate pension asset * liability recogni'ed in t.e balance s.eet.
c $6. 3alculate pension liability.
d $". 3alculate pension liability.
c $$. 3alculate pension liability.
b $%. 3alculate a!ount of intangible asset.
d %(. 3alculate pension liability.
b %1. Deter!ine pension liability to be reported.
d %2. Deter!ine pension asset * liability to be reported.
d %3. Deter!ine balance of pro,ected benefit obligation.
c %4. Deter!ine fair #alue of plan assets.
d %5. Deter!ine pension asset * liability to be reported.
a %6. Deter!ine pension liability to be reported.
b <%". 3alculate postretire!ent e0pense.
a <%$. 3alculate postretire!ent e0pense.
b <%%. 3alculate postretire!ent e0pense.
MU)TIP)E CHOICE*CPA A#a&te#
d 1((. Deter!ine t.e pro,ected benefit obligation.
b 1(1. :ature of interest cost.
c 1(2. Deter!ine pension asset * liability to be reported.
d 1(3. Deter!ine pension asset * liability to be reported.
a 1(4. 3alculate pension liability.
b 1(5. 3alculate pension liability.
E/ERCISES
Ite. Des%ri&tion
/2(-1(6 )ension accounting ter!inology.
/2(-1(" )ension asset ter!inology.
/2(-1($ >easuring and recording pension e0pense.
2(-3
E/ERCISES ,%ont'-
Ite. Des%ri&tion
/2(-1(% >easuring and recording pension e0pense.
/2(-11( dditional pension liability.
/2(-111 )ension reconciliation sc.edule.
/2(-112 )ension plan calculations.
/2(-113 )ension plan calculation and entries.
/2(-114 3orridor a!orti'ation.
/2(-115 3orridor approac. 5a!orti'ation of net gains and losses.7
/2(-116 )ension plan calculations and ,ournal entry.
</2(-11" 3o!puting and recording postretire!ent e0pense.
</2(-11$ 3o!puting postretire!ent e0pense and )92.
PROB)EMS
Ite. Des%ri&tion
)2(-11% >easuring? recording? and reporting pension e0pense and liability.
)2(-12( >easuring and recording pension e0pense.
)2(-121 )reparing a pension =or@ s.eet.
)2(-122 !orti'ation of prior ser#ice cost.
CHAPTER )EARNING OB0ECTI1ES
1. Distinguis. bet=een accounting for t.e e!ployerAs pension plan and accounting for t.e
pension fund.
2. 4dentify types of pension plans and t.eir c.aracteristics.
3. /0plain alternati#e !easures for #aluing t.e pension obligation.
4. +ist t.e co!ponents of pension e0pense.
5. 1se a =or@s.eet for e!ployerAs pension plan entries.
6. Describe t.e a!orti'ation of prior ser#ice costs.
". /0plain t.e accounting for une0pected gains and losses.
$. /0plain t.e corridor approac. to a!orti'ing gains and losses.
%. Describe t.e reBuire!ents for reporting pension plans in financial state!ents.
<1(. 4dentify t.e differences bet=een pensions and postretire!ent .ealt.care benefits.
<11. 3ontrast accounting for pensions to accounting for ot.er postretire!ent benefits.
2(-4
SUMMAR2 OF )EARNING OB0ECTI1ES B2 3UESTIONS
Ite. T4&e Ite. T4&e Ite. T4&e Ite. T4&e Ite. T4&e Ite. T4&e Ite. T4&e
)earnin5 O!6e%tive 7
1. TF 2. TF 21. >3 22. >3
3. TF 4. TF 23. >3 24. >3 25. >3
8
26. >3
8
2". >3
5. TF 2$. >3 3(. >3 32. >3 11". /
6. TF 2%. >3 31. >3 1(6. /
". TF 36. >3 64. >3 "1. >3 $(. >3 1(". /
$. TF 3". >3 65. >3 "2. >3 $1. >3 1($. /
33. >3 3$. >3 66. >3 "3. >3 1((. / 1(%. /
34. >3 3%. >3 6". >3 "4. >3 1(1. / 116. /
35. >3 4(. >3 6$. >3 "5. >3 1(6. / 12(. )
)earnin5 O!6e%tive :
%. TF 1(. TF 41. >3 "". >3 "$. >3 121. )
)earnin5 O!6e%tive ;
11. TF 42. >3 44. >3 "%. >3 1(%. / 122. )
12. TF 43. >3 45. >3 1($. / 11%. )
)earnin5 O!6e%tive <
13. TF 46. >3 $2. >3 112. / 12(. )
14. TF "5. >3 1(". / 11%. ) 121. )
)earnin5 O!6e%tive =
15. TF 4$. >3 "6. >3 $5. >3 112. / 115. /
16. TF 4%. >3 $3. >3 1(%. / 113. / 12(. )
4". >3 "(. >3 $4. >3 111. / 114. /
)earnin5 O!6e%tive >
1". TF 51. >3 56. >3 $%. >3 %4. >3 1(4. >3 12(. )
1$. TF 52. >3 6%. >3 %(. >3 %5. >3 1(5. >3
1%. TF 53. >3 $6. >3 %1. >3 %6. >3 11(. /
2(. TF 54. >3 $". >3 %2. >3 1(2. >3 111. /
5(. >3 55. >3 $$. >3 %3. >3 1(3. >3 11%. )
)earnin5 O!6e%tive ?70
5". >3
)earnin5 O!6e%tive ?77
5". >3 5%. >3 61. >3 63. >3 %$. >3 111. / 11$. /
5$. >3 6(. >3 62. >3 %". >3 %%. >3 11". /
:oteC TF D True-False / D /0ercise
>3 D >ultiple 3.oice ) D )roble!
2(-5
TRUE(FA)SE*Con%e&tua
1. pension plan is contributory =.en t.e e!ployer !a@es pay!ents to a funding agency.
2. Qualified pension plans per!it deductibility of t.e e!ployerEs contributions to t.e pension
fund.
3. n e!ployer does not .a#e to report a liability on its balance s.eet in a defined-benefit
plan.
4. /!ployers are at ris@ =it. defined-benefit plans because t.ey !ust contribute enoug. to
!eet t.e cost of benefits t.at t.e plan defines.
5. 3o!panies co!pute t.e #ested benefit obligation using only #ested benefits? at current
salary le#els.
6. T.e accu!ulated benefit obligation bases t.e deferred co!pensation a!ount on bot.
#ested and non#ested ser#ice using future salary le#els.
". 8er#ice cost is t.e e0pense caused by t.e increase in t.e accu!ulated benefit obligation
because of e!ployeesE ser#ice during t.e current year.
$. T.e interest co!ponent of pension e0pense in t.e current period is co!puted by
!ultiplying t.e settle!ent rate by t.e beginning balance of t.e pro,ected benefit
obligation.
%. 3o!panies recogni'e t.e accu!ulated benefit obligation in t.eir accounts and in t.eir
financial state!ents.
1(. T.e )ension sset * +iability account balance eBuals t.e difference bet=een t.e pro,ected
benefit obligation and t.e fair #alue of pension plan assets.
11. 3o!panies s.ould recogni'e t.e entire increase in pro,ected benefit obligation due to a
plan initiation or a!end!ent as pension e0pense in t.e year of a!end!ent.
12. T.e F89 reBuires only t.e years-of-ser#ice !et.od for a!orti'ation of prior ser#ice cost.
13. T.e difference bet=een t.e e0pected return and t.e actual return is referred to as t.e
une0pected gain or loss.
14. T.e une0pected gains and losses fro! c.anges in t.e pro,ected benefit obligation are
called asset gains and losses.
15. T.e ccu!ulated 2t.er 3o!pre.ensi#e 4nco!e 56*+7 account is a!orti'ed only if it
e0ceeds 1( percent of t.e larger of t.e beginning balances of t.e pro,ected benefit
obligation or t.e !ar@et-related plan assets #alue.
16. 4f t.e ccu!ulated 2t.er 3o!pre.ensi#e 4nco!e 56*+7 account is less t.an t.e corridor?
t.e net gains and losses are sub,ect to a!orti'ation.
2(-6
1". F.en a co!pany a!ends its defined benefit plan? and recogni'es prior ser#ice? t.e
pro,ected benefit obligation is increased to recogni'e t.is additional liability.
1$. 3o!panies report ccu!ulated 2t.er 3o!pre.ensi#e 4nco!e 5)837 as a liability on t.e
balance s.eet.
1%. 2t.er 3o!pre.ensi#e 4nco!e 5)837 is reported as part of net inco!e.
2(. 3o!panies !ust disclose a reconciliation of .o= t.e pro,ected benefit obligation and t.e
fair #alue of plan assets c.anged during t.e year eit.er in t.eir financial state!ents or in
t.e notes.
True(Fase Ans+ers*Con%e&tua
Ite. Ans' Ite. Ans' Ite. Ans' Ite. Ans'
1. F 6. F 11. F 16. F
2. T ". F 12. F 1". T
3. F $. T 13. T 1$. F
4. T %. F 14. F 1%. F
5. T 1(. T 15. T 2(. T
MU)TIP)E CHOICE*Con%e&tua
21. 4n deter!ining t.e present #alue of t.e prospecti#e benefits 5often referred to as t.e
pro,ected benefit obligation7? t.e follo=ing are considered by t.e actuaryC
a. retire!ent and !ortality rate.
b. interest rates.
c. benefit pro#isions of t.e plan.
d. all of t.ese factors.
22. 4n a defined-benefit plan? t.e process of funding refers to
a. deter!ining t.e pro,ected benefit obligation.
b. deter!ining t.e accu!ulated benefit obligation.
c. !a@ing t.e periodic contributions to a funding agency to ensure t.at funds are
a#ailable to !eet retireesA clai!s.
d. deter!ining t.e a!ount t.at !ig.t be reported for pension e0pense.
23. 4n all pension plans? t.e accounting proble!s include all t.e follo=ing except
a. !easuring t.e a!ount of pension obligation.
b. disclosing t.e status and effects of t.e plan in t.e financial state!ents.
c. allocating t.e cost of t.e plan to t.e proper periods.
d. deter!ining t.e le#el of indi#idual pre!iu!s.
24. 4n a defined-contribution plan? a for!ula is used t.at
a. defines t.e benefits t.at t.e e!ployee =ill recei#e at t.e ti!e of retire!ent.
b. ensures t.at pension e0pense and t.e cas. funding a!ount =ill be different.
c. reBuires an e!ployer to contribute a certain su! eac. period based on t.e for!ula.
d. ensures t.at e!ployers are at ris@ to !a@e sure funds are a#ailable at retire!ent.
2(-"
25. 4n a defined-benefit plan? a for!ula is used t.at
a. reBuires t.at t.e benefit of gain or t.e ris@ of loss fro! t.e assets contributed to t.e
pension plan be borne by t.e e!ployee.
b. defines t.e benefits t.at t.e e!ployee =ill recei#e at t.e ti!e of retire!ent.
c. reBuires t.at pension e0pense and t.e cas. funding a!ount be t.e sa!e.
d. defines t.e contribution t.e e!ployer is to !a@eG no pro!ise is !ade concerning t.e
ulti!ate benefits to be paid out to t.e e!ployees.
26. F.ic. of t.e follo=ing is not a c.aracteristic of a defined-contribution pension planH
a. T.e e!ployerAs contribution eac. period is based on a for!ula.
b. T.e benefits to be recei#ed by e!ployees are usually deter!ined by an e!ployeeEs
t.ree .ig.est years of salary defined by t.e ter!s of t.e plan.
c. T.e accounting for a defined-contribution plan is straig.tfor=ard and unco!plicated.
d. T.e benefit of gain or t.e ris@ of loss fro! t.e assets contributed to t.e pension fund
are borne by t.e e!ployee.
2". 4n accounting for a defined-benefit pension plan
a. an appropriate funding pattern !ust be establis.ed to ensure t.at enoug. !onies =ill
be a#ailable at retire!ent to !eet t.e benefits pro!ised.
b. t.e e!ployerAs responsibility is si!ply to !a@e a contribution eac. year based on t.e
for!ula establis.ed in t.e plan.
c. t.e e0pense recogni'ed eac. period is eBual to t.e cas. contribution.
d. t.e liability is deter!ined based upon @no=n #ariables t.at reflect future salary le#els
pro!ised to e!ployees.
2$. lternati#e !et.ods e0ist for t.e !easure!ent of t.e pension obligation 5liability7. F.ic.
!easure reBuires t.e use of future salaries in its co!putationH
a. Vested benefit obligation
b. ccu!ulated benefit obligation
c. )ro,ected benefit obligation
d. &estructured benefit obligation
2%. T.e accu!ulated benefit obligation !easures
a. t.e pension obligation on t.e basis of t.e plan for!ula applied to years of ser#ice to
date and based on e0isting salary le#els.
b. t.e pension obligation on t.e basis of t.e plan for!ula applied to years of ser#ice to
date and based on future salary le#els.
c. an esti!ated total benefit at retire!ent and t.en co!putes t.e le#el cost t.at =ill be
sufficient? toget.er =it. interest e0pected to accu!ulate at t.e assu!ed rate? to
pro#ide t.e total benefits at retire!ent.
d. t.e s.ortest possible period for funding to !a0i!i'e t.e ta0 deduction.
3(. T.e pro,ected benefit obligation is t.e !easure of pension obligation t.at
a. is reBuired to be used for reporting t.e ser#ice cost co!ponent of pension e0pense.
b. reBuires pension e0pense to be deter!ined solely on t.e basis of t.e plan for!ula
applied to years of ser#ice to date and based on e0isting salary le#els.
c. reBuires t.e longest possible period for funding to !a0i!i'e t.e ta0 deduction.
d. is not sanctioned under generally accepted accounting principles for reporting t.e
ser#ice cost co!ponent of pension e0pense.
2(-$
31. Differing !easures of t.e pension obligation can be based on
a. all years of ser#ice;bot. #ested and non#ested;using current salary le#els.
b. only t.e #ested benefits using current salary le#els.
c. bot. #ested and non#ested ser#ice using future salaries.
d. all of t.ese.
32. Vested benefits
a. usually reBuire a certain !ini!u! nu!ber of years of ser#ice.
b. are t.ose t.at t.e e!ployee is entitled to recei#e e#en if fired.
c. are not contingent upon additional ser#ice under t.e plan.
d. are defined by all of t.ese.
33. T.e relations.ip bet=een t.e a!ount funded and t.e a!ount reported for pension
e0pense is as follo=sC
a. pension e0pense !ust eBual t.e a!ount funded.
b. pension e0pense =ill be less t.an t.e a!ount funded.
c. pension e0pense =ill be !ore t.an t.e a!ount funded.
d. pension e0pense !ay be greater t.an? eBual to? or less t.an t.e a!ount funded.
34. T.e co!putation of pension e0pense includes all t.e follo=ing except
a. ser#ice cost co!ponent !easured using current salary le#els.
b. interest on pro,ected benefit obligation.
c. e0pected return on plan assets.
d. ll of t.ese are included in t.e co!putation.
35. 4n co!puting t.e ser#ice cost co!ponent of pension e0pense? t.e F89 concluded t.at
a. t.e accu!ulated benefit obligation pro#ides a !ore realistic !easure of t.e pension
obligation on a going concern basis.
b. a co!pany s.ould e!ploy an actuarial funding !et.od to report pension e0pense t.at
best reflects t.e cost of benefits to e!ployees.
c. t.e pro,ected benefit obligation using future co!pensation le#els pro#ides a realistic
!easure of present pension obligation and e0pense.
d. all of t.ese.
36. T.e interest on t.e pro,ected benefit obligation co!ponent of pension e0pense
a. reflects t.e incre!ental borro=ing rate of t.e e!ployer.
b. reflects t.e rates at =.ic. pension benefits could be effecti#ely settled.
c. is t.e sa!e as t.e e0pected return on plan assets.
d. !ay be stated i!plicitly or e0plicitly =.en reported.
3". 2ne co!ponent of pension e0pense is e0pected return on plan assets. )lan assets
include
a. contributions !ade by t.e e!ployer and contributions !ade by t.e e!ployee =.en a
contributory plan of so!e type is in#ol#ed.
b. plan assets still under t.e control of t.e co!pany.
c. only assets reported on t.e balance s.eet of t.e e!ployer as prepaid pension cost.
d. none of t.ese.
2(-%
3$. T.e actual return on plan assets
a. is eBual to t.e c.ange in t.e fair #alue of t.e plan assets during t.e year.
b. includes interest? di#idends? and c.anges in t.e !ar@et #alue of t.e fund assets.
c. is eBual to t.e e0pected rate of return ti!es t.e fair #alue of t.e plan assets at t.e
beginning of t.e period.
d. all of t.ese.
3%. 4n accounting for a pension plan? any difference bet=een t.e pension cost c.arged to
e0pense and t.e pay!ents into t.e fund s.ould be reported as
a. an offset to t.e liability for prior ser#ice cost.
b. pension asset*liability.
c. as ot.er co!pre.ensi#e inco!e 56*+7
d. as accu!ulated ot.er co!pre.ensi#e inco!e 5)837.
4(. F.ic. of t.e follo=ing ite!s s.ould be included in pension e0pense calculated by an
e!ployer =.o sponsors a defined-benefit pension plan for its e!ployeesH
!orti'ation of
Fair #alue prior
of plan assets ser#ice cost
a. -es -es
b. -es :o
c. :o -es
d. :o :o
41. corporation .as a defined-benefit plan. pension liability =ill result at t.e end of t.e
year if t.e
a. pro,ected benefit obligation e0ceeds t.e fair #alue of t.e plan assets.
b. fair #alue of t.e plan assets e0ceeds t.e pro,ected benefit obligation.
c. a!ount of e!ployer contributions e0ceeds t.e pension e0pense.
d. a!ount of pension e0pense e0ceeds t.e a!ount of e!ployer contributions.
42. F.en a co!pany adopts a pension plan? prior ser#ice costs s.ould be c.arged to
a. accu!ulated ot.er co!pre.ensi#e inco!e 5)837.
b. operations of prior periods.
c. 2t.er co!pre.ensi#e inco!e 5)837.
d. retained earnings.
43. F.en a co!pany a!ends a pension plan? for accounting purposes? prior ser#ice costs
s.ould be
a. treated as a prior period ad,ust!ent because no future periods are benefited.
b. a!orti'ed in accordance =it. procedures used for inco!e ta0 purposes.
c. recorded in ot.er co!pre.ensi#e inco!e 5)837.
d. reported as an e0pense in t.e period t.e plan is a!ended.
44. )rior ser#ice cost is a!orti'ed on a
a. straig.t-line basis o#er t.e e0pected future years of ser#ice.
b. years-of-ser#ice !et.od or on a straig.t-line basis o#er t.e a#erage re!aining ser#ice
life of acti#e e!ployees.
c. straig.t-line basis o#er 15 years.
d. straig.t-line basis o#er t.e a#erage re!aining ser#ice life of acti#e e!ployees or 15
years? =.ic.e#er is longer.
2(-1(
45. F.ene#er a defined-benefit plan is a!ended and credit is gi#en to e!ployees for years of
ser#ice pro#ided before t.e date of a!end!ent
a. bot. t.e accu!ulated benefit obligation and t.e pro,ected benefit obligation are
usually greater t.an before.
b. bot. t.e accu!ulated benefit obligation and t.e pro,ected benefit obligation are
usually less t.an before.
c. t.e e0pense and t.e liability s.ould be recogni'ed at t.e ti!e of t.e plan c.ange.
d. t.e e0pense s.ould be recogni'ed i!!ediately? but t.e liability !ay be deferred until a
reasonable basis for its deter!ination .as been identified.
46. T.e actuarial gains or losses t.at result fro! c.anges in t.e pro,ected benefit obligation
are called
sset +iability
6ains I +osses 6ains I +osses
a. -es -es
b. :o :o
c. -es :o
d. :o -es
4". 6ains and losses t.at relate to t.e co!putation of pension e0pense s.ould be
a. recorded currently as an ad,ust!ent to pension e0pense in t.e period incurred.
b. recorded currently and in t.e future by applying t.e corridor !et.od =.ic. pro#ides
t.e a!ount to be a!orti'ed.
c. a!orti'ed o#er a 15-year period.
d. recorded only if a loss is deter!ined.
4$. T.e fair #alue of pension plan assets is used to deter!ine t.e corridor and to calculate t.e
e0pected return on plan assets.
/0pected &eturn
3orridor on )lan ssets
a. -es -es
b. -es :o
c. :o -es
d. :o :o
4%. pension fund gain or loss t.at is caused by a plant closing s.ould be
a. recogni'ed i!!ediately as a gain or loss on t.e plant closing.
b. spread o#er t.e current year and future years.
c. c.arged or credited to t.e current pension e0pense.
d. recogni'ed as a prior period ad,ust!ent.
5(. pension liability is reported =.en
a. t.e pro,ected benefit obligation e0ceeds t.e fair #alue of pension plan assets.
b. t.e accu!ulated benefit obligation is less t.an t.e fair #alue of pension plan assets.
c. t.e pension e0pense reported for t.e period is greater t.an t.e funding a!ount for t.e
sa!e period.
d. accu!ulated ot.er co!pre.ensi#e inco!e e0ceeds t.e fair #alue of pension plan
assets.
2(-11
51. pension asset is reported =.en
a. t.e accu!ulated benefit obligation e0ceeds t.e fair #alue of pension plan assets.
b. t.e accu!ulated benefit obligation e0ceeds t.e fair #alue of pension plan assets? but a
prior ser#ice cost e0ists.
c. pension plan assets at fair #alue e0ceed t.e accu!ulated benefit obligation.
d. pension plan assets at fair #alue e0ceed t.e pro,ected benefit obligation.
52. F.ic. of t.e follo=ing state!ents is correctH
a. T.ere is an account titled )ension sset * +iability.
b. T.ere is an account titled ccu!ulated 9enefit 2bligation.
c. ccu!ulated 2t.er 3o!pre.ensi#e 4nco!e s.ould be reported in t.e liability section
of t.e balance s.eet.
d. 2t.er co!pre.ensi#e inco!e 5)837 s.ould be included in net inco!e.
53. ccording to t.e F89? recognition of a liability is reBuired =.en t.e pro,ected benefit
obligation e0ceeds t.e fair #alue of plan assets. 3on#ersely? =.en t.e fair #alue of plan
assets e0ceeds t.e pro,ected benefit obligation? t.e 9oard
a. reBuires recognition of an asset.
b. reBuires recognition of an asset if t.e e0cess fair #alue of plan assets e0ceeds t.e
corridor a!ount.
c. reco!!ends recognition of an asset but does not reBuire suc. recognition.
d. does not per!it recognition of an asset.
54. F.ic. of t.e follo=ing disclosures of pension plan infor!ation =ould not nor!ally be
reBuiredH
a. T.e !a,or co!ponents of pension e0pense
b. T.e a!ount of prior ser#ice cost c.anged or credited in pre#ious years.
c. T.e funded status of t.e plan and t.e a!ounts recogni'ed in t.e financial state!ents
d. T.e rates used in !easuring t.e benefit a!ounts
55. T.e !ain purpose of t.e )ension 9enefit 6uaranty 3orporation is to
a. reBuire !ini!u! funding of pensions.
b. reBuire plan ad!inistrators to publis. a co!pre.ensi#e description and su!!ary of
t.eir plans.
c. ad!inister ter!inated plans and to i!pose liens on t.e e!ployerAs assets for certain
unfunded pension liabilities.
d. all of t.ese.
56. F.ic. of t.e follo=ing state!ents is true about postretire!ent .ealt. care benefitsH
a. T.ey are generally funded.
b. T.e benefits are =ell-defined and le#el in dollar a!ount.
c. T.e beneficiary is t.e retiree? spouse? and ot.er dependents.
d. T.e benefit is payable !ont.ly.
<5". F.ic. of t.e follo=ing disclosures of postretire!ent benefits =ould not be reBuired by
professional pronounce!entsH
a. )ostretire!ent e0pense for t.e period
b. sc.edule s.o=ing c.anges in postretire!ent benefits and plan assets during t.e year
c. T.e a!ount of t.e /)92
d. T.e assu!ptions and rates used in co!puting t.e /)92 and )92
2(-12
<5$. postretire!ent asset is co!puted as t.e e0cess of t.e
a. e0pected postretire!ent benefit obligation o#er t.e fair #alue of plan assets.
b. accu!ulated postretire!ent benefit obligation o#er t.e fair #alue of plan assets.
c. fair #alue of plan assets o#er t.e accu!ulated postretire!ent benefit obligation.
d. accu!ulated postretire!ent benefit obligation o#er t.e fair #alue of plan assets? but
not #ice #ersa.
<5%. )ostretire!ent benefits !ay include all of t.e follo=ing except
a. se#erance pay to laid-off e!ployees.
b. dental care.
c. legal and ta0 ser#ices.
d. tuition assistance.
<6(. 6ains or losses can represent c.anges in
a. /)92 or t.e fair #alue of pension plan assets.
b. /)92 or t.e boo@ #alue of pension plan assets.
c. )92 or t.e fair #alue of pension plan assets.
d. )92 or t.e boo@ #alue of pension plan assets.
<61. F.ic. of t.e follo=ing state!ents about t.e e0pected postretire!ent benefit obligation
5/)927 is not correctH
a. T.e /)92 is an actuarial present #alue.
b. T.e /)92 is recorded in t.e accounts.
c. T.e /)92 is used in !easuring periodic e0pense.
d. ll of t.ese are correct.
<62. F.ic. of t.e follo=ing state!ents about t.e recognition of a prior ser#ice cost related to a
postretire!ent obligation is correctH
a. T.e prior ser#ice a!ount is recogni'ed in t.e inco!e state!ent in t.e current period.
b. T.e prior ser#ice cost is recogni'ed in t.e inco!e state!ent net of ta0.
c. &estate!ent of pre#iously issued annual financial state!ents is reBuired.
d. T.e prior ser#ice cost a!ount affects co!pre.ensi#e inco!e in t.e current period.
<63. F.ic. of t.e follo=ing is recogni'ed in t.e accounts and in t.e financial state!entsH
a. ccu!ulated postretire!ent benefit obligation
b. )ostretire!ent asset * liability
c. /0pected postretire!ent benefit obligation
d. ll of t.ese.
Muti&e C"oi%e Ans+ers*Con%e&tua
Ite. Ans' Ite. Ans' Ite. Ans' Ite. Ans' Ite. Ans' Ite. Ans' Ite. Ans'
21. d 2$. c 35. c 42. c 4%. a 56. c <63. b
22. c 2%. a 36. b 43. c 5(. a <5". c
23. d 3(. a 3". a 44. b 51. d <5$. c
24. c 31. d 3$. b 45. a 52. a <5%. a
25. b 32. d 3%. b 46. d 53. a <6(. c
26. b 33. d 4(. c 4". b 54. b <61. b
2". a 34. a 41. a 4$. a 55. c <62. d
2(-13
64. )resented belo= is pension infor!ation related to Foods? 4nc. for t.e year 2(11C
8er#ice cost J"2?(((
4nterest on pro,ected benefit obligation 54?(((
4nterest on #ested benefits 24?(((
!orti'ation of prior ser#ice cost due to increase in benefits 12?(((
/0pected return on plan assets 1$?(((
T.e a!ount of pension e0pense to be reported for 2(11 is
a. J1($?(((.
b. J144?(((.
c. J162?(((.
d. J12(?(((.
65. Kraft? 4nc. sponsors a defined-benefit pension plan. T.e follo=ing data relates to t.e
operation of t.e plan for t.e year 2(11.
8er#ice cost J 2((?(((
3ontributions to t.e plan 22(?(((
ctual return on plan assets 1$(?(((
)ro,ected benefit obligation 5beginning of year7 2?4((?(((
>ar@et-related and fair #alue of plan assets 5beginning of year7 1?6((?(((
T.e e0pected return on plan assets and t.e settle!ent rate =ere bot. 1(L. T.e a!ount
of pension e0pense reported for 2(11 is
a. J2((?(((.
b. J26(?(((.
c. J2$(?(((.
d. J44(?(((.
66. )resented belo= is infor!ation related to Mensen 4nc. pension plan for 2(11.
8er#ice cost J%((?(((
ctual return on plan assets 21(?(((
4nterest on pro,ected benefit obligation 3%(?(((
!orti'ation of net loss %(?(((
!orti'ation of prior ser#ice cost due to increase in benefits 165?(((
/0pected return on plan assets 1$(?(((
F.at a!ount s.ould be reported for pension e0pense in 2(11H
a. J1?365?(((
b. J1?335?(((
c. J1?515?(((
d. J1?155?(((
2(-14
6". 9arton? 4nc. recei#ed t.e follo=ing infor!ation fro! its pension plan trustee concerning t.e
operation of t.e co!panyAs defined-benefit pension plan for t.e year ended Dece!ber 31?
2(11.
Manuary 1? 2(11 Dece!ber 31? 2(11
Fair #alue of pension plan assets J4?2((?((( J4?5((?(((
)ro,ected benefit obligation 4?$((?((( 5?16(?(((
ccu!ulated benefit obligation $4(?((( 1?(2(?(((
ccu!ulated 234 N 56ains * +osses7 -(- 5%(?(((7
T.e ser#ice cost co!ponent of pension e0pense for 2(11 is J36(?((( and t.e
a!orti'ation of prior ser#ice cost due to an increase in benefits is J6(?(((. T.e settle!ent
rate is 1(L and t.e e0pected rate of return is %L. F.at is t.e a!ount of pension e0pense
for 2(11H
a. J36(?(((
b. J522?(((
c. J531?(((
d. J432?(((
1se t.e follo=ing infor!ation for Buestions 6$ t.roug. "(.
T.e follo=ing infor!ation for 3ooper /nterprises is gi#en belo=C
Dece!ber 31? 2(11
ssets and obligations
)lan assets 5at fair #alue7 J1((?(((
ccu!ulated benefit obligation 1$5?(((
)ro,ected benefit obligation 2((?(((
2t.er 4te!s
)ension asset * liability? Manuary 1? 2(11 5?(((
3ontributions 6(?(((
ccu!ulated ot.er co!pre.ensi#e loss $3?%5(
T.ere =ere no actuarial gains or losses at Manuary 1? 2(11. T.e a#erage re!aining ser#ice life of
e!ployees is 1( years.
6$. F.at is t.e pension e0pense t.at 3ooper /nterprises s.ould report for 2(11H
a. J"6?(5(
b. J11(?(((
c. J6(?(((
d. J$3?%5(
6%. F.at is t.e a!ount t.at 3ooper /nterprises s.ould report as its pension liability on its
balance s.eet as of Dece!ber 31? 2(11H
a. J1((?(((
b. J15?(((
c. J1$5?(((
d. J2((?(((
"(. T.e a!orti'ation of 2t.er 3o!pre.ensi#e +oss for 2(12 isC
a. J(
b. J6?3%5
c. J11?5((
d. J$?3%5
2(-15
"1. T.e follo=ing infor!ation is related to t.e pension plan of +ong? 4nc. for 2(11.
ctual return on plan assets J2((?(((
!orti'ation of net gain $2?5((
!orti'ation of prior ser#ice cost due to increase in benefits 15(?(((
/0pected return on plan assets 23(?(((
4nterest on pro,ected benefit obligation 362?5((
8er#ice cost $((?(((
)ension e0pense for 2(11 is
a. J1?1%5?(((.
b. J1?165?(((.
c. J1?(3(?(((.
d. J1?(((?(((.
"2. )resented belo= is pension infor!ation for 6reen 3o!pany for t.e year 2(11C
/0pected return on plan assets J24?(((
4nterest on #ested benefits 15?(((
8er#ice cost 3(?(((
!orti'ation of prior ser#ice cost due to increase in benefits 1$?(((
T.e a!ount of pension e0pense to be reported for 2(11 is
a. J%3?(((.
b. J6%?(((.
c. J6(?(((.
d. J45?(((.
"3. Oubbard? 4nc. recei#ed t.e follo=ing infor!ation fro! its pension plan trustee concerning
t.e operation of t.e co!panyAs defined-benefit pension plan for t.e year ended Dece!ber
31? 2(11.
1*1*11 12*31*11
)ro,ected benefit obligation J11?4((?((( J11?"6(?(((
)ension assets 5at fair #alue7 6?(((?((( 6?%((?(((
ccu!ulated benefit obligation 2?4((?((( 2?"6(?(((
:et 5gains7 and losses -(- 24(?(((
T.e ser#ice cost co!ponent of pension e0pense for 2(11 is J$4(?((( and t.e
a!orti'ation of prior ser#ice cost due to an increase in benefits is J1$(?(((. T.e
settle!ent rate is 1(L and t.e e0pected rate of return is $L. F.at is t.e a!ount of
pension e0pense for 2(11H
a. J1?"16?(((
b. J1?6$(?(((
c. J1?6($?(((
d. J1?44(?(((
2(-16
1se t.e follo=ing infor!ation for Buestions "4 t.roug. "6.
T.e follo=ing data are for t.e pension plan for t.e e!ployees of +oc@ett 3o!pany.
1*1*1( 12*31*1( 12*31*11
ccu!ulated benefit obligation J"?5((?((( J"?$((?((( J1(?2((?(((
)ro,ected benefit obligation $?1((?((( $?4((?((( 11?1((?(((
)lan assets 5at fair #alue7 6?%((?((( %?(((?((( %?%((?(((
23+ N net loss -(- 1?44(?((( 1?5((?(((
8ettle!ent rate 5for year7 1(L %L
/0pected rate of return 5for year7 $L "L
+oc@ettEs contribution =as J1?26(?((( in 2(11 and benefits paid =ere J1?125?(((. +oc@ett
esti!ates t.at t.e a#erage re!aining ser#ice life is 15 years.
"4. T.e actual return on plan assets in 2(11 =as
a. J%((?(((.
b. J"65?(((.
c. J6((?(((.
d. J465?(((.
"5. ssu!e t.at t.e actual return on plan assets in 2(11 =as J$((?(((. T.e une0pected gain
on plan assets in 2(11 =as
a. J1%1?(((.
b. J1"(?(((.
c. J14%?(((.
d. J1("?(((.
"6. T.e corridor for 2(11 =as J%((?(((. T.e a!ount of 234-net loss a!orti'ed in 2(11 =as
a. J1((?(((.
b. J%6?(((.
c. J42?(((.
d. J36?(((.
1se t.e follo=ing infor!ation for Buestions "" and "$.
2n Manuary 1? 2(11? :e=lin 3o. .as t.e follo=ing balancesC
)ro,ected benefit obligation J2?1((?(((
Fair #alue of plan assets 1?$((?(((
T.e settle!ent rate is 1(L. 2t.er data related to t.e pension plan for 2(11 areC
8er#ice cost J1$(?(((
!orti'ation of prior ser#ice costs due to increase in benefits 6(?(((
3ontributions 3((?(((
9enefits paid 1(5?(((
ctual return on plan assets 23"?(((
!orti'ation of net gain 1$?(((
2(-1"
"". T.e balance of t.e pro,ected benefit obligation at Dece!ber 31? 2(11 is
a. J2?6$5?(((.
b. J2?3$5?(((.
c. J2?355?(((.
d. J2?33"?(((.
"$. T.e fair #alue of plan assets at Dece!ber 31? 2(11 is
a. J2?43(?(((.
b. J2?25(?(((.
c. J2?232?(((.
d. J2?214?(((.
"%. &at.@e? 4nc. .as a defined-benefit pension plan co#ering its 5( e!ployees. &at.@e agrees
to a!end its pension benefits. s a result? t.e pro,ected benefit obligation increased by
J1?5((?(((. &at.@e deter!ined t.at all its e!ployees are e0pected to recei#e benefits
under t.e plan o#er t.e ne0t 5 years. 4n addition? 2(L are e0pected to retire or Buit eac.
year. ssu!ing t.at &at.@e uses t.e years-of-ser#ice !et.od of a!orti'ation for prior
ser#ice cost? t.e a!ount reported as a!orti'ation of prior ser#ice cost in year one after
t.e a!end!ent is
a. J3((?(((.
b. J5((?(((.
c. J15(?(((.
d. J4((?(((.
1se t.e follo=ing infor!ation for Buestions $( t.roug. $4.
T.e follo=ing infor!ation relates to t.e pension plan for t.e e!ployees of Turner 3o.C
1*1*1( 12*31*1( 12*31*11
ccu!. benefit obligation J5?2$(?((( J5?52(?((( J"?2((?(((
)ro,ected benefit obligation 5?5$(?((( 5?%"6?((( $?((4?(((
Fair #alue of plan assets 5?1((?((( 6?24(?((( 6?$$$?(((
234 N net 5gain7 or loss -(- 5$64?(((7 5%6(?(((7
8ettle!ent rate 5for year7 11L 11L
/0pected rate of return 5for year7 $L "L
Turner esti!ates t.at t.e a#erage re!aining ser#ice life is 16 years. TurnerAs contribution =as
J"56?((( in 2(11 and benefits paid =ere J564?(((.
$(. T.e interest cost for 2(11 is
a. J53"?$4(.
b. J6("?2((.
c. J65"?36(.
d. J$$(?44(.
$1. T.e actual return on plan assets in 2(11 is
a. J4($?(((.
b. J456?(((.
c. J5$$?(((.
d. J64$?(((.
2(-1$
$2. T.e une0pected gain or loss on plan assets in 2(11 is
a. J3%?36( loss.
b. J22?56( gain.
c. J1%?2(( gain.
d. J214?56( gain.
$3. T.e corridor for 2(11 is
a. J61%?2((.
b. J624?(((.
c. J6"$?(((.
d. J$((?4((.
$4. T.e a!ount of 234 5net gain7 a!orti'ed in 2(11 is
a. J15?3((.
b. J15?(((.
c. J11?626.
d. J%?%"".
$5. )resented belo= is infor!ation related to Dec@er >anufacturing 3o!pany as of
Dece!ber 31? 2(11C
)ro,ected benefit obligation in e0cess of plan assets J%((?(((
ccu!ulated 234 -net gain 3((?(((
ccu!ulated 234 5)837 4(5?(((
T.e a!ount for t.e prior ser#ice cost is related to an increase in benefits. T.e fair #alue of
t.e pension plan assets is J6((?(((.
T.e pension asset * liability reported on t.e balance s.eet at Dece!ber 31? 2(11 is
a. )ension liability of J3((?(((
b. )ension liability of J6((?(((
c. )ension liability of J%((?(((
d. )ension liability of J1?3(5?(((
1se t.e follo=ing infor!ation for Buestions $6 and $".
Foster 3orporation recei#ed t.e follo=ing report fro! its actuary at t.e end of t.e yearC
Dece!ber 31? 2(1( Dece!ber 31? 2(11
)ro,ected benefit obligation J1?6((?((( J1?$((?(((
ccu!ulated benefit obligation 1?3((?((( 1?4$(?(((
Fair #alue of pension plan assets 1?3$(?((( 1?44(?(((
$6. T.e a!ount reported as t.e pension liability at Dece!ber 31? 2(1( is
a. J -(-.
b. J2((?(((.
c. J22(?(((.
d. J3((?(((.
2(-1%
$". T.e a!ount reported as t.e pension liability at Dece!ber 31? 2(11 is
a. J1?$((?(((
b. J1?4$(?(((
c. J3$(?(((
d. J36(?(((
1se t.e follo=ing infor!ation for Buestions $$ and $%.
T.e follo=ing infor!ation relates to Mac@son? 4nc.C
For t.e -ear /nded Dece!ber 31?
2(1( 2(11
)lan assets 5at fair #alue7 J1?26(?((( J1?$24?(((
)ension e0pense 5"(?((( 45(?(((
)ro,ected benefit obligation 1?62(?((( 1?$$4?(((
nnual contribution to plan 6((?((( 45(?(((
ccu!ulated 234 5)837 4$(?((( 42(?(((
$$. T.e a!ount reported as t.e liability for pensions on t.e Dece!ber 31? 2(1( balance
s.eet is
a. J -(-.
b. J3(?(((.
c. J36(?(((.
d. J3%(?(((.
$%. T.e a!ount reported as t.e liability for pensions on t.e Dece!ber 31? 2(11 balance s.eet
is
a. J -(-.
b. J6(?(((.
c. J1?$$4?(((.
d. J52(?(((.
%(. )resented belo= is infor!ation related to :oble 4nc. as of Dece!ber 31? 2(11.
ccu!ulated 234 56*+7 J %(?(((
)ro,ected benefit obligation 3?6((?(((
ccu!ulated benefit obligation 3?42(?(((
Vested benefits 1?62(?(((
)lan assets 5at fair #alue7 3?3$4?(((
ccu!ulated 234 5)837 -(-
T.e a!ount reported as t.e pension liability on :obleAs balance s.eet at Dece!ber 31?
2(11 is as follo=sC
a. J -(-.
b. J36?(((.
c. J%(?(((.
d. J216?(((.
2(-2(
%1. &ossi 3o!pany .as a defined-benefit plan. t t.e end of 2(11? it .as deter!ined t.e
follo=ing infor!ation related to its pension planC
)ro,ected benefit obligation J"((?(((
ccu!ulated benefit obligation 66(?(((
Fair #alue of pension plan assets 61(?(((
T.e a!ount of pension liability t.at is reported in &ossiAs balance s.eet at t.e end of 2(11 is
a. J1((?(((.
b. J%(?(((.
c. J6(?(((.
d. J5(?(((.
%2. )resented belo= is pension infor!ation related to Faters 3o!pany as of Dece!ber 31?
2(11C
ccu!ulated benefit obligation J3?(((?(((
)ro,ected benefit obligation 3?5((?(((
)lan assets 5at fair #alue7 3?6((?(((
ccu!ulated 234 56 * +7 1((?(((
T.e a!ount to be reported as )ension sset * +iability as of Dece!ber 31? 2(11 is
a. )ension +iability of J5((?(((.
b. )ension sset of J6((?(((.
c. )ension +iability of J1((?(((.
d. )ension sset of J1((?(((.
1se t.e follo=ing infor!ation for Buestions %3 and %4.
2n Manuary 1? 2(11? )ar@s 3o. .as t.e follo=ing balancesC
)ro,ected benefit obligation J4?2((?(((
Fair #alue of plan assets 3?"5(?(((
T.e settle!ent rate is 1(L. 2t.er data related to t.e pension plan for 2(11 areC
8er#ice cost J24(?(((
!orti'ation of prior ser#ice costs 54?(((
3ontributions 2"(?(((
9enefits paid 225?(((
ctual return on plan assets 264?(((
!orti'ation of net gain 1$?(((
%3. T.e balance of t.e pro,ected benefit obligation at Dece!ber 31? 2(11 is
a. J4?5"2?(((.
b. J4?5%(?(((.
c. J4?62%?(((.
d. J4?635?(((.
%4. T.e fair #alue of plan assets at Dece!ber 31? 2(11 is
a. J3?531?(((.
b. J3?"$%?(((.
c. J4?(5%?(((.
d. J4?2$4?(((.
2(-21
%5. Ouggins 3o!pany .as t.e follo=ing infor!ation at Dece!ber 31? 2(11 related to its
pension planC
)ro,ected benefit obligation J4?(((?(((
ccu!ulated benefit obligation 3?2((?(((
)lan assets 5fair #alue7 4?2((?(((
ccu!ulated 234 5)837 3((?(((
T.e a!ount of pension asset * liability Ouggins 3o!pany =ould recogni'e at Dece!ber 31?
2(11 is
a. )ension liability of J3((?(((.
b. )ension asset of J1?(((?(((.
c. )ension liability of J$((?(((.
d. )ension asset of J2((?(((.
%6. T.e follo=ing pension plan infor!ation is for Farr 3o!pany at Dece!ber 31? 2(11.
)ro,ected benefit obligation J$?4((?(((
ccu!ulated benefit obligation "?5((?(((
)lan assets 5at fair #alue7 6?15(?(((
ccu!ulated 234 5)837 54(?(((
)ension e0pense for 2(11 3?(((?(((
3ontribution for 2(11 2?4((?(((
T.e a!ount to be reported as t.e liability for pensions on t.e Dece!ber 31? 2(11 balance
s.eet is
a. J2?25(?(((.
b. J1?%5(?(((.
c. J1?35(?(((.
d. J1?(5(?(((.
<%". T.e follo=ing facts relate to t.e )atton 3o. postretire!ent benefits plan for 2(11C
8er#ice cost J1"(?(((
Discount rate %L
)92? Manuary 1? 2(11 J1?5((?(((
/)92? Manuary 1? 2(11 J2?(((?(((
9enefit pay!ents to e!ployees J115?(((
T.e a!ount of postretire!ent e0pense for 2(11 is
a. J1"(?(((.
b. J3(5?(((.
c. J35(?(((.
d. J42(?(((.
2(-22
<%$. T.e follo=ing facts relate to t.e postretire!ent benefits plan of Keller? 4nc. for 2(11C
8er#ice cost J6$(?(((
Discount rate $L
)92? Manuary 1? 2(11 J4?(((?(((
/)92? Manuary 1? 2(11 J4?$((?(((
#erage re!aining ser#ice to full eligibility 2( years
#erage re!aining ser#ice to e0pected retire!ent 25 years
a. J1?(((?(((.
b. J1?16(?(((.
c. J1?2((?(((.
d. J1?224?(((.
<%%. T.e follo=ing facts relate to t.e 6a!ble 3o. postretire!ent benefits plan for 2(11C
8er#ice cost J126?(((
Discount rate 1(L
/)92? Manuary 1? 2(11 J1?(%5?(((
)92? Manuary 1? 2(11 J%((?(((
ctual return on plan assets in 2(11 J31?5((
/0pected return on plan assets in 2(11 J24?(((
a. J1$4?5((.
b. J1%2?(((.
c. J211?5((.
d. J216?(((.
Muti&e C"oi%e Ans+ers*Co.&utationa
Ite. Ans' Ite. Ans' Ite. Ans' Ite. Ans' Ite. Ans' Ite. Ans'
64. d "(. b "6. d $2. c $$. c %4. c
65. c "1. d "". b $3. b $%.
.
b %5. d
66. a "2. d "$. c $4. b %(. d %6. a
6". b "3. b "%. b $5. a %1. b %". b
6$. a "4. b $(. c $6. c %2. d %$. a
6%. a "5. b $1. b $". d %3. d %%. b
2(-23
MU)TIP)E CHOICE*CPA A#a&te#
1((. T.e follo=ing infor!ation pertains to Oopson 3o.As pension planC
ctuarial esti!ate of pro,ected benefit obligation at 1*1*11 J"2?(((
ssu!ed discount rate 1(L
8er#ice costs for 2(11 J1$?(((
)ension benefits paid during 2(11 J15?(((
4f no c.ange in actuarial esti!ates occurred during 2(11? OopsonAs pro,ected benefit
obligation at Dece!ber 31? 2(11 =as
a. J64?2((.
b. J"5?(((.
c. J"%?2((.
d. J$2?2((.
1(1. 4nterest cost included in pension e0pense recogni'ed for a period by an e!ployer
sponsoring a defined-benefit pension plan represents t.e
a. s.ortage bet=een t.e e0pected and actual returns on plan assets.
b. increase in t.e pro,ected benefit obligation due to t.e passage of ti!e.
c. increase in t.e fair #alue of plan assets due to t.e passage of ti!e.
d. a!orti'ation of t.e discount on accu!ulated 234 5)837.
1(2. +ogan 3orp.? a co!pany =.ose stoc@ is publicly traded? pro#ides a noncontributory
defined-benefit pension plan for its e!ployees. T.e co!panyAs actuary .as pro#ided t.e
follo=ing infor!ation for t.e year ended Dece!ber 31? 2(11C
)ro,ected benefit obligation J6((?(((
ccu!ulated benefit obligation 525?(((
Fair #alue of plan assets $25?(((
8er#ice cost 24(?(((
!orti'ation of prior ser#ice cost 6(?(((
/0pected and actual return on plan assets $2?5((
T.e !ar@et-related asset #alue eBuals t.e fair #alue of plan assets. :o contributions .a#e
been !ade for 2(11 pension cost. 4n its Dece!ber 31? 2(11 balance s.eet? +ogan s.ould
report a pension asset * liability of
a. )ension liability of J6((?(((
b. )ension asset of J$24?(((
c. )ension asset of J225?(((
d. )ension liability of J525?(((
1(3. 8eigel 3o. !aintains a defined-benefit pension plan for its e!ployees. t eac. balance
s.eet date? -eager s.ould report a pension asset * liability eBual to t.e
a. accu!ulated benefit obligation.
b. pro,ected benefit obligation.
c. accu!ulated benefit obligation.
d. funded status relati#e to t.e pro,ected benefit obligation.
2(-24
1(4. 2.l!an? 4nc. !aintains a defined-benefit pension plan for its e!ployees. s of Dece!ber
31? 2(11? t.e !ar@et #alue of t.e plan assets is less t.an t.e accu!ulated benefit
obligation. T.e pro,ected benefit obligation e0ceeds t.e accu!ulated benefit obligation. 4n
its balance s.eet as of Dece!ber 31? 2(11? 2.l!an s.ould report a liability in t.e a!ount
of t.e
a. e0cess of t.e pro,ected benefit obligation o#er t.e fair #alue of t.e plan assets.
b. e0cess of t.e accu!ulated benefit obligation o#er t.e fair #alue of t.e plan assets.
c. pro,ected benefit obligation.
d. accu!ulated benefit obligation.
1(5. t Dece!ber 31? 2(11? t.e follo=ing infor!ation =as pro#ided by t.e Vargas 3orp.
pension plan ad!inistratorC
Fair #alue of plan assets J4?5((?(((
ccu!ulated benefit obligation 5?5$(?(((
)ro,ected benefit obligation "?2((?(((
F.at is t.e a!ount of t.e pension liability t.at s.ould be s.o=n on VargasA Dece!ber 31?
2(11 balance s.eetH
a. J"?2((?(((
b. J2?"((?(((
c. J1?62(?(((
d. J1?($(?(((
Muti&e C"oi%e Ans+ers*CPA A#a&te#
Ite. Ans' Ite. Ans' Ite. Ans'
1((. d 1(2. c 1(4. a
1(1. b 1(3. d 1(5. b
DERI1ATIONS * Co.&utationa
No' Ans+er Derivation
64. d J"2?((( P J54?((( P J12?((( N J1$?((( D J12(?(((.
65. c J2((?((( P 5J2?4((?((( Q .1(7 N 5J1?6((?((( Q .1(7 D J2$(?(((.
66. a J%((?((( P J3%(?((( P J%(?((( P J165?((( N J1$(?((( D J1?365?(((.
6". b J36(?((( P J6(?((( P 5J4?$((?((( Q .1(7 N 5J4?2((?((( Q .(%7 D J522?(((.
6$. a J1((?((( P J6(?((( - J$3?%5( D J"6?(5(.
6%. a J2((?((( - J1((?((( D J1((?(((.
"(. b 5J$3?%5( - J2(?(((7 R 1( D J6?3%5.
"1. d J$((?((( P J362?5(( N J23(?((( N J$2?5(( P J15(?((( D J1?(((?(((.
2(-25
DERI1ATIONS * Co.&utationa ,%ont'-
"2. d J3(?((( P J21?((( P J1$?((( N J24?((( D J45?(((.
"3. b J$4(?((( P 5J11?4((?((( Q .1(7 N 5J6?(((?((( Q .($7 P J1$(?((( D J1?6$(?(((.
"4. b 5J%?%((?((( N J%?(((?(((7 N J1?26(?((( P J1?125?((( D J"65?(((
"5. b J$((?((( N 5J%?(((?((( Q .("7 D J1"(?(((.
"6. d 5J1?44(?((( N J%((?(((7 R 15 D J36?(((.
"". b J2?1((?((( P J1$(?((( P 5J2?1((?((( Q .1(7 N J1(5?((( D J2?3$5?(((.
"$. c J1?$((?((( P J23"?((( P J3((?((( N J1(5?((( D J2?232?(((.
"%. b 5( P 4( P 3( P 2( P 1( D 15(.
J1?5((?((( R 15( D J1(?(((*ser#ice yr.
J1(?((( Q 5( D J5((?(((.
$(. c J5?%"6?((( Q .11 D J65"?36(.
$1. b 5J6?$$$?((( N J6?24(?(((7 N 5J"56?((( N J564?(((7 D J456?(((.
$2. c J456?((( N 5J6?24(?((( Q .("7 D J1%?2((.
$3. b J6?24(?((( Q .1( D J624?(((.
$4. b 5J$64?((( N J624?(((7 R 16 D J15?(((.
$5. a J%((?((( N J6((?((( D J3((?(((.
$6. c J1?6((?((( N J1?3$(?((( D J22(?(((.
$". d J1?$((?((( N J1?44(?((( D J36(?(((.
$$. c J1?62(?((( N J1?26(?((( D J36(?(((.
$%. b J1?$$4?((( N J1?$24?((( D J6(?(((.
%(. d J3?6((?((( N J3?3$4?((( D J216?(((.
%1. b J"((?((( N J61(?((( D J%(?(((.
%2. d J3?6((?((( N J3?5((?((( D J1((?(((.
%3. d J4?2((?((( P J24(?((( N J225?((( P 5J4?2((?((( Q .1(7 D J4?635?(((.
%4. c J3?"5(?((( P J264?((( P J2"(?((( N J225?((( D J4?(5%?(((.
%5. d J4?2((?((( N J4?(((?((( D J2((?((( 5sset7.
2(-26
DERI1ATIONS * Co.&utationa ,%ont'-
%6. a J$?4((?((( N J6?15(?((( D J2?25(?(((.
<%". b J1"(?((( P J135?((( D J3(5?(((.
<%$. a J6$(?((( P J32(?((( D J1?(((?(((.
<%%. b J126?((( P J%(?((( N J24?((( D J1%2?(((.
DERI1ATIONS * CPA A#a&te#
1((. d J"2?((( P J1$?((( P 5J"2?((( Q .1(7 N J15?((( D J$2?2((.
1(1. b 3onceptual.
1(2. c J$25?((( - J6((?((( D J225?(((.
1(3. d 3onceptual.
1(4. a 3onceptual.
1(5. b J"?2((?((( N J4?5((?((( D J2?"((?(((.
E/ERCISES
E@' 20(70;;)ension accounting ter!inology.
9riefly e0plain t.e follo=ing ter!sC
5a7 8er#ice cost
5b7 4nterest cost
5c7 )rior ser#ice cost
5d7 Vested benefits
Soution 20(70;
5a7 T.e ser#ice cost co!ponent of pension e0pense is t.e actuarial present #alue of benefits
attributed by t.e pension benefit for!ula to e!ployee ser#ice during t.e current period.
5b7 T.e interest cost co!ponent of pension e0pense is t.e interest for t.e period on t.e
pro,ected benefit obligation outstanding during t.e period. To si!plify t.e calculation? t.e
a!ount of interest is co!puted by applying a single rate to t.e beginning balance of t.e
pro,ected benefit obligation.
5c7 F.en a defined-benefit plan is initiated or a!ended? credit t.at is gi#en to e!ployees for
ser#ice pro#ided before t.e date of initiation or a!end!ent results in prior ser#ice cost. T.e
a!ount of prior ser#ice cost is co!puted by an actuary.
5d7 Vested benefits are t.ose t.e e!ployee is entitled to recei#e e#en if t.e e!ployee is no
longer e!ployed under t.e plan.
2(-2"
E@' 20(70<;)ension assets.
Discuss t.e follo=ing ideas related to pension assetsC
5a7 >ar@et-related asset #alue.
5b7 ctual return on plan assets.
5c7 /0pected return on plan assets.
5d7 1ne0pected gains and losses on plan assets.
Soution 20(70<
5a7 >ar@et-related asset #alue is a !o#ing a#erage of pension plan assets calculated o#er not
!ore t.an fi#e years. T.e actual return is =.at t.e plan assets earn during t.e period
including !ar@et appreciation 5depreciation7. 5Fe assu!e t.at t.e fair #alue of t.e plan
assets is used in all co!putations.7
5b7 T.e actual return on plan assets is co!puted by finding t.e c.ange in t.e fair #alue of plan
assets during t.e period. T.is c.ange is ad,usted by deducting contributions and adding
benefits paid out during t.e year.
5c7 T.e e0pected return on plan assets is found by !ultiplying t.e e0pected rate of return by t.e
!ar@et-related asset #alue at t.e beginning of t.e period.
5d7 n une0pected asset gain occurs =.en t.e actual return on plan assets is greater t.an t.e
e0pected return on plan assets and an une0pected loss occurs =.en t.e actual return is
less t.an t.e e0pected return.
E@' 20(70=;>easuring and recording pension e0pense.
Kessler? 4nc. recei#ed t.e follo=ing infor!ation fro! its pension plan trustee concerning t.e
operation of t.e co!panyAs defined-benefit pension plan for t.e year ended Dece!ber 31? 2(11C
Manuary 1? 2(11 Dece!ber 31? 2(11
)ro,ected benefit obligation J2?5((?((( J2?$5(?(((
>ar@et-related asset #alue 1?25(?((( 1?6((?(((
ccu!ulated benefit obligation 1?%3(?((( 2?62(?(((
ccu!ulated 234 N 5)837 54(?((( 3((?(((
T.e ser#ice cost co!ponent for 2(11 is J15(?((( and t.e a!orti'ation of prior ser#ice cost is
J24(?(((. T.e co!panyAs actual funding of t.e plan in 2(11 a!ounted to J51(?(((. T.e
e0pected return on plan assets and t.e settle!ent rate =ere bot. $L.
Instru%tions
5a7 Deter!ine t.e pension e0pense to be reported in 2(11.
5b7 )repare t.e ,ournal entry to record pension e0pense and t.e e!ployersA contribution to t.e
pension plan in 2(11.
2(-2$
Soution 20(70=
5a7 8er#ice cost J15(?(((
4nterest on pro,ected benefit obligations 5J2?5((?((( Q $L7 2((?(((
/0pected return on plan assets 5J1?25(?((( Q $L7 51((?(((7
)ension e0pense;2(11 J4%(?(((
5b7 )ension /0pense ......................................................................... 4%(?(((
)ension sset * +iability ............................................................... 26(?(((
3as. ................................................................................ 51(?(((
2t.er 3o!pre.ensi#e 4nco!e 5)837 ............................. 24(?(((
E@' 20(70>;>easuring and recording pension e0pense.
)resented belo= is infor!ation related to Mones Depart!ent 8tores? 4nc. pension plan for 2(11.
ccu!ulated benefit obligation 5at year-end7 J6((?(((
8er#ice cost 52(?(((
Funding contribution for 2(11 5((?(((
8ettle!ent rate used in actuarial co!putation 1(L
/0pected return on plan assets %L
!orti'ation of )83 5due to benefit increase7 1((?(((
!orti'ation of net gains 4$?(((
)ro,ected benefit obligation 5at beginning of period7 4$(?(((
>ar@et-related 5and fair7 #alue of plan assets 5at beginning of period7 36(?(((
Instru%tions
5a7 3o!pute t.e a!ount of pension e0pense to be reported for 2(11. 58.o= co!putations.7
5b7 )repare t.e ,ournal entry to record pension e0pense and t.e e!ployerAs contribution for
2(11.
Soution 20(70>
4nterest on pro,ected benefit obligation 5J4$(?((( Q 1(L7 4$?(((
/0pected return on plan assets 5J36(?((( Q %L7 532?4((7
!orti'ation of )83 1((?(((
!orti'ation of net gains 54$?(((7
)ension e0pense;2(11 J5$"?6((
5b7 )ension /0pense.......................................................................... 5$"?6((
2t.er 3o!pre.ensi#e 4nco!e 56*+7............................................ 4$?(((
3as.................................................................................. 5((?(((
2t.er 3o!pre.ensi#e 4nco!e 5)837................................ 1((?(((
)ension sset * +iability.................................................... 35?6((
2(-2%
E@' 20(770; &ecording pension asset * liability.
>iles 3o. .ad t.e follo=ing selected balances at Dece!ber 31? 2(11C
)ro,ected benefit obligation J4?"((?(((
ccu!ulated benefit obligation 4?55(?(((
Fair #alue of plan assets 4?34(?(((
ccu!ulated 234 5)837 1"(?(((
Instru%tions
3alculate t.e pension asset * liability to be recorded at Dece!ber 31? 2(11.
Soution 20(770
J4?"((?((( - J 4?34(?((( D J36(?(((.
E@' 20(777;)ension calculations.
>ontoya 3o!pany .as a#ailable t.e follo=ing infor!ation about its defined-benefit pension plan
for t.e year ending Dece!ber 31? 2(11C
8er#ice cost for 2(11 J 25?(((
ccu!ulated benefit obligation 6$3?(((
)lan assets at fair #alue 63(?(((
ccu!ulated 234 5)837 3((?(((
Vested benefit obligation 5(5?(((
>ar@et-related asset #alue "25?(((
)ro,ected benefit obligation $65?(((
ccu!ulated 234 net gain %(?(((
Instru%tions
5a7 3alculate t.e pension asset * liability to be recorded at Dece!ber 31? 2(11.
5b7 3alculate t.e 2(12 a!orti'ation of t.e net gain. T.e a#erage re!aining ser#ice life of
e!ployees is 1( years.
Soution 20(777
5a7 J$65?((( - J63(?((( D J235?((( )ension liability.
5b7 SJ%(?((( N 5J$65?((( T 1(L7U R 1( D J35(.
E@' 20(772;)ension plan calculations.
T.e follo=ing infor!ation is for t.e pension plan for t.e e!ployees of )ayne? 4nc.
12*31*1( 12*31*11
ccu!ulated benefit obligation J2?$((?((( J3?"6(?(((
)ro,ected benefit obligation 3?(4(?((( 4?(((?(((
Fair #alue of plan assets 3?($(?((( 3?52(?(((
234 N :et 5gain7 or loss 5425?(((7 54$(?(((7
8ettle!ent rate $L $L
/0pected rate of return "L 6L
2(-3(
)ayne esti!ates t.at t.e a#erage re!aining ser#ice life is 15 years. )ayneAs contribution =as
J52(?((( in 2(11 and benefits paid =ere J2$(?(((.
Instru%tions
5a7 3alculate t.e interest cost for 2(11.
5b7 3alculate t.e actual return on plan assets in 2(11.
5c7 3alculate t.e une0pected gain or loss in 2(11.
5d7 3alculate t.e corridor for 2(11 and t.e a!orti'ation of t.e net gain for 2(11.
Soution 20(772
5a7 J3?(4(?((( Q $L D J243?2((
5b7 Fair #alue of plan assets 512*31*117 J3?52(?(((
Fair #alue of plan assets 51*1*117 53?($(?(((7
44(?(((
3ontributions 552(?(((7
9enefits paid 2$(?(((
ctual return on plan assets J 2((?(((
5c7 ctual return 5see b.7 J 2((?(((
/0pected return 5J3?($(?((( Q 6L7 1$4?$((
1ne0pected gain J 15?2((
5d7 .1( Q J3?($(?((( D J3($?(((G .1( Q J3?(4(?((( D J3(4?(((.
T.e corridor is t.e larger? J3($?(((.
J425?((( N J3($?((( D J11"?(((G J11"?((( R 15 D J"?$(( a!orti'ation of net gain.
E@' 20(778;)ension plan calculations and entries.
8elected 4nfor!ation about t.e pension plan of &o!an 3o. is as follo=sC
12*31*1( 12*31*11
ccu!ulated benefit obligation J4?"((?((( J4?%3(?(((
)ro,ected benefit obligation 4?$((?((( 5?(2(?(((
ccu!ulated 234 5)837 1?$((?((( 1?6((?(((
Fair #alue of plan assets 4?65(?((( 4?$((?(((
)ension e0pense 1?(((?((( 1?62(?(((
3ontribution %$5?((( 1?35(?(((
Discount rate 5for year7 %L $L
Instru%tions
5a7 F.at is t.e corridor for 2(11H
5b7 3alculate t.e pension asset * liability at Dece!ber 31? 2(11.
5c7 )repare t.e entry for 2(11 to record t.e pension e0pense and contribution.
Soution 20(778
5a7 .1( Q J4?$((?((( D J4$(?(((G .1( Q J4?65(?((( D J465?(((
T.e corridor is t.e larger? J4$(?(((.
5b7 )ro,ected benefit obligation J5?(2(?(((
Fair #alue of plan assets 54?$((?(((7
)ension asset * liability J 22(?(((
2(-31
Soution 20(778 5cont.7
5c7 )ension /0pense.......................................................................... 1?62(?(((
3as.................................................................................. 1?35(?(((
2t.er 3o!pre.ensi#e 4nco!e 5)837................................ 2((?(((
)ension sset * +iability.................................................... "(?(((
E@' 20(779;3orridor a!orti'ation.
/0plain corridor a!orti'ation.
Soution 20(779
T.e F89 in#ented t.e corridor approac. for a!orti'ing pension plan gains and losses =.en
t.ey get too large. T.e net gain or loss gets too large =.en it e0ceeds t.e arbitrarily selected
criterion of 1(L of t.e larger of t.e beginning balances of t.e pro,ected benefit obligation or t.e
!ar@et-related asset #alue. 6enerally? t.e straig.t-line !et.od? based on ser#ice li#es? is used to
a!orti'e t.ese gains and losses.
E@' 20(77:;3orridor approac. 5a!orti'ation of net gains and losses.7
6ibbs 3o!pany .as 2(( e!ployees =.o are e0pected to recei#e benefits under t.e co!panyAs
defined-benefit pension plan. T.e total nu!ber of ser#ice-years of t.ese e!ployees is 2?(((. T.e
actuary for t.e co!panyAs pension plan calculated t.e follo=ing net gains and lossesC
For t.e -ear /nded
Dece!ber 31 56ain7 2r +oss
2(1( J66(?(((
2(11 55%4?(((7
2(12 %%(?(((
)rior to 2(1(? t.ere =as no unrecogni'ed net gain or loss.
4nfor!ation about t.e co!panyAs pro,ected benefit obligation and !ar@et-related 5and fair7 #alue
of plan assets follo=sC
s of Manuary 1
2(1( 2(11 2(12
)ro,ected benefit obligation J2?1((?((( J2?34(?((( J2?%4(?(((
Fair #alue of plan assets 1?6$(?((( 2?46(?((( 2?55(?(((
Instru%tions
9ased on t.e abo#e infor!ation about 6ibbs 3o!pany? prepare a sc.edule =.ic. reflects t.e
a!ount of net gain or loss to be a!orti'ed by t.e co!pany as a co!ponent of pension e0pense
for t.e years 2(1(? 2(11? and 2(12. T.e co!pany a!orti'es net gains or losses using t.e
straig.t-line !et.od o#er t.e a#erage ser#ice life of participating e!ployees.
2(-32
Soution 20(77:
3orridor Test and 6ain*+oss !orti'ation 8c.edule
9eginning of -ear ccu!ulated 234
)92 )lan ssets 3orridor 56ain * +oss7 !orti'ation
2(1( J2?1((?((( J1?6$(?((( J21(?((( J -(- J -(-
2(11 2?34(?((( 2?46(?((( 246?((( 66(?((( 41?4((<
2(12 2?%4(?((( 2?55(?((( 2%4?((( 24?6((<< -(-
#erage 8er#ice -ears D 2?((( R 2(( D 1( years
<J66(?((( N J246?((( D J414?((( R 1( D J41?4((
<<J66(?((( N J5%4?((( N J41?4(( D J24?6((.
E@' 20(77;;)ension plan calculations and ,ournal entry.
2n Manuary 1? 2(11? >c6ee 3o. .ad t.e follo=ing balancesC
)ro,ected benefit obligation J"?2((?(((
Fair #alue of plan assets "?2((?(((
2t.er data related to t.e pension plan for 2(11C
8er#ice cost 315?(((
3ontributions to t.e plan 45%?(((
9enefits paid 45(?(((
ctual return on plan assets 432?(((
8ettle!ent rate %L
/0pected rate of return 6L
Instru%tions
5a7 Deter!ine t.e pro,ected benefit obligation at Dece!ber 31? 2(11. T.ere are no net gains or
losses.
5b7 Deter!ine t.e fair #alue of plan assets at Dece!ber 31? 2(11.
5c7 3alculate pension e0pense for 2(11.
5d7 )repare t.e ,ournal entry to record pension e0pense and t.e contributions for 2(11.
Soution 20(77;
5a7 )ro,ected benefit obligation? Manuary 1 J"?2((?(((
8er#ice cost 315?(((
4nterest cost 5%L Q J"?2((?(((7 64$?(((
9enefits paid 545(?(((7
)ro,ected benefit obligation? Dece!ber 31 J"?"13?(((
5b7 Fair #alue of plan assets? Manuary 1 J"?2((?(((
ctual return 432?(((
3ontributions 45%?(((
9enefits paid 545(?(((7
Fair #alue of plan assets? Dece!ber 31 J"?641?(((
5c7 8er#ice cost J315?(((
4nterest cost 5%L Q J"?2((?(((7 64$?(((
ctual 5and e0pected7 return on plan assets 5432?(((7
)ension e0pense J531?(((
2(-33
Soution 20(77; 5cont.7
5d7 )ension /0pense 531?(((
)ension sset * +iability.................................................... "2?(((
3as.................................................................................. 45%?(((
?E@' 20(77<;3o!puting and recording postretire!ent e0pense.
T.e follo=ing infor!ation is related to t.e 8tone 3o. postretire!ent benefits plan for 2(11C
8er#ice cost J16$?(((
Discount rate 1(L
/)92? Manuary 1? 2(11 $2(?(((
)92? Manuary 1? 2(11 64(?(((
ctual return on plan assets in 2(11 22?4((
/0pected return on plan assets in 2(11 2%?(((
3ontributions 5funding7 224?(((
Instru%tions
5a7 3o!pute t.e a!ount of postretire!ent e0pense for 2(11. 58.o= co!putations.7
5b7 )repare t.e ,ournal entry to record postretire!ent e0pense and 8toneAs contributions for
2(11.
?Soution 20(77<
5a7 8er#ice cost J16$?(((
4nterest cost 51(L Q J64(?(((7 64?(((
ctual return on plan assets 522?4((7
1ne0pected loss 56?6((7
)ostretire!ent e0pense;2(11 J2(3?(((
5b7 )ostretire!ent /0pense............................................................... 2(3?(((
)ostretire!ent sset * +iability...................................................... 21?(((
3as. ................................................................................ 224?(((
?E@' 20(77=;3o!puting postretire!ent e0pense and )92.
T.e follo=ing infor!ation is related to t.e postretire!ent benefits plan of Oeerey? 4nc. for 2(11C
8er#ice cost J 2$(?(((
Discount rate $L
)92? Manuary 1? 2(11 2?1((?(((
/)92? Manuary 1? 2(11 2?4((?(((
ctual return on plan assets in 2(11 1(4?(((
/0pected return on plan assets in 2(11 %5?6((
!orti'ation of )83? due to benefit increase 1("?2((
3ontributions 5funding7 4((?(((
9enefit pay!ents 2($?(((
2(-34
Instru%tions
5a7 3o!pute t.e a!ount of postretire!ent e0pense for 2(11. 58.o= co!putations.7
5b7 3o!pute t.e a!ount of t.e )92 at Dece!ber 31? 2(11.
?Soution 20(77=
5a7 8er#ice cost J2$(?(((
4nterest cost 5$L Q J2?1((?(((7 16$?(((
ctual return on plan assets 51(4?(((7
1ne0pected gain $?4((
!orti'ation of )83 1("?2((
)ostretire!ent e0pense;2(11 J45%?6((
5b7 )92? Manuary 1? 2(11 J2?1((?(((
8er#ice cost 2$(?(((
4nterest cost 16$?(((
9enefit pay!ents 52($?(((7
)92? Dece!ber 31? 2(11 J2?34(?(((
PROB)EMS
Pr' 20(77>;>easuring? recording? and reporting pension e0pense and liability.
Tuc@er? 4nc. on Manuary 1? 2(11 initiated a noncontributory? defined-benefit pension plan t.at
grants benefits to its 1(( e!ployees for ser#ices rendered in years prior to t.e adoption of t.e
pension plan. T.e total e0pected ser#ice-years of t.e 1(( e!ployees =.o are e0pected to
recei#e benefits under t.e plan is 1?2((. n actuarial consulting fir! .as indicated t.at t.e
present #alue of t.e pro,ected benefit obligation on Manuary 1? 2(11 =as J5?(4(?(((. 2n
Dece!ber 31? 2(11 t.e follo=ing infor!ation =as pro#ided concerning t.e pension planAs
operations for its first year.
/!ployerAs contribution at end of year J1?6((?(((
8er#ice cost 6((?(((
)ro,ected benefit obligation 6?(43?2((
)lan assets 5at fair #alue7 1?6((?(((
/0pected return on plan assets %L
8ettle!ent rate $L
Instru%tions
5a7 3o!pute t.e pension e0pense recogni'ed in 2(11. ssu!e t.e prior ser#ice cost is
a!orti'ed o#er t.e a#erage re!aining ser#ice life of t.e e!ployees.
5b7 )repare t.e ,ournal entries to reflect accounting for t.e co!panyAs pension plan for t.e year
ended Dece!ber 31? 2(11.
5c7 4ndicate t.e a!ounts t.at are reported on t.e inco!e state!ent and t.e balance s.eet for
2(11.
2(-35
Soution 20(77>
5a7 8er#ice cost J 6((?(((
4nterest on pro,ected benefit obligation 5J5?(4(?((( Q $L7 4(3?2((
!orti'ation of prior ser#ice cost< 42(?(((
)ension e0pense;2(11 J1?423?2((
<1?2((
D 12 years a#erage re!aining ser#ice life
1((
J5?(4(?(((
D J42(?(((
12
5b7 )ension /0pense......................................................................... 1?423?2((
)ension sset * +iability................................................................ 5%6?$((
3as.................................................................................. 1?6((?(((
234 - )83......................................................................... 42(?(((
5c7 In%o.e state.ent
)ension /0pense J1?423?2((
:ote t.at t.e 2t.er co!pre.ensi#e inco!e 5)837 c.arge is added to net inco!e to deter!ine
Total co!pre.ensi#e inco!e. T.e presentation of net inco!e and ot.er co!pre.ensi#e inco!e
can be s.o=n in a single co!bined state!ent? separate state!ents? or in t.e state!ent of
stoc@.oldersE eBuity.
Baan%e S"eet
)ia!iities
)ension liability J4?443?2((
Sto%A"o#ersB Equit4
ccu!ulated 234 5)837 J4?62(?(((
Pr' 20(720;>easuring and recording pension e0pense.
)resented belo= is infor!ation related to t.e pension plan of Vi!!er 4nc. for t.e year 2(11.
1. T.e ser#ice cost related to pension e0pense is J24(?((( using t.e pro,ected benefits
approac..
2. T.e pro,ected benefit obligation and t.e accu!ulated benefit obligation at t.e beginning of t.e
year are J3((?((( and J2$(?(((? respecti#ely. T.e e0pected return on plan assets is %L and
t.e settle!ent rate is 1(L.
2(-36
Pr' 20(720 5cont.7
3. T.e accu!ulated 234 N prior ser#ice cost at t.e beginning of t.e year is J14(?(((. T.e
co!pany .as a =or@force of 2(( e!ployees? all =.o are e0pected to recei#e benefits under
t.e plan. T.e total nu!ber of ser#ice-years is 1?((( and t.e ser#ice-years attributable to 2(11
is 2((. T.e co!pany .as decided to use t.e years-of-ser#ice !et.od of a!orti'ation for
t.ese costs.
4. t t.e beginning of t.e period? fair #alue of pension plan assets? J2$(?(((. T.e co!pany .ad
an ccu!ulated 234 5loss7 at t.e beginning of t.e period of J%(?(((. ny a!orti'ation of
unrecogni'ed net loss is recogni'ed on a straig.t-line basis o#er t.e a#erage re!aining
ser#ice-life of t.e e!ployees.
5. T.e contribution !ade to t.e pension fund in 2(11 =as J231?(((.
Instru%tions
5a7 Deter!ine t.e pension e0pense to be reported on t.e inco!e state!ent for 2(11. 5&ound all
co!putations to nearest dollar.7
5b7 )repare t.e ,ournal entry5ies7 to record pension e0pense for 2(11.
Soution 20(720
4nterest on pro,ected benefit obligation 51(L Q J3((?(((7 3(?(((
/0pected return on plan assets 5%L Q J2$(?(((7 525?2((7
!orti'ation of prior ser#ice cost 517 2$?(((
!orti'ation of loss 527 12?(((
)ension e0pense J2$4?$((
517
J14(?(((
D J14(
1?(((
2(( Q J14( D J2$?(((
527 Fair #alue of plan assets J2$(?(((
1(L
J 2$?(((
)ro,ected benefit obligation J3((?(((
1(L
J 3(?(((
:et loss 5beginning of period7 5J %(?(((7
Oig.er of 1(L of pro,ected benefit obligation or fair #alue of plan assets 3(?(((
!ount to be a!orti'ed 5J 6(?(((7
1?(((
D
/0pected Future -ears of 8er#ice
D 5 years
2(( :u!ber of /!ployees
J6(?(((
D J12?(((
5 years
2(-3"
5b7 )ension /0pense.......................................................................... 2$4?$((
234 56*+7............................................................................. 12?(((
234-)83.............................................................................. 2$?(((
)ension sset * +iability....................................................... 13?$((
3as..................................................................................... 231?(((
Pr' 20(727;)reparing a pension =or@ s.eet.
T.e accountant for >arlin 3orporation .as de#eloped t.e follo=ing infor!ation for t.e co!panyAs
defined-benefit pension plan for 2(11C
8er#ice cost J5((?(((
ctual return on plan assets 26(?(((
nnual contribution to t.e plan %((?(((
!orti'ation of prior ser#ice cost 1(5?(((
9enefits paid to retirees 6(?(((
8ettle!ent rate 1(L
/0pected rate of return on plan assets $L
T.e accu!ulated benefit obligation at Dece!ber 31? 2(11? a!ounted to J4?25(?(((.
Instru%tions
5a7 1sing t.e abo#e infor!ation for >arlin 3orporation? co!plete t.e pension =or@ s.eet for
2(11. 4ndicate 5credit7 entries by parent.eses. 3alculated a!ounts s.ould be supported.
5b7 )repare t.e ,ournal entry to reflect t.e accounting for t.e co!panyAs pension plan for t.e
year ending Dece!ber 31? 2(11.
2(-3$
Pr' 20(727 5cont.7 >arlin 3orporation
)ension For@ 8.eet;2(11
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
6eneral Mournal /ntries >e!o /ntries
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
nnual 234 )ension )ro,ected
)ension 6ain * sset * 9enefit )lan
/0pense 3as. )83 +oss +iability 2bligation ssets
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
9al.? Dec. 31? 2(1( 625?((( 1?(((?((( 53?"5(?(((7 2?"5(?(((
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
8er#ice 3ost
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
4nterest 3ost
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
ctual return
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
1ne0pected
gain*loss
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
!orti'ation
of )83
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
3ontributions
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
9enefits
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
6ain*loss a!ort.
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
Mournal entry
for 2(11
9alance? Dec. 31? 2(11
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Soution 20(727 >arlin 3orporation
)ension For@ 8.eet;2(11
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
6eneral Mournal /ntries >e!o /ntries
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
234
nnual )rior 6ain * )ension )ro,ected
)ension 8er#ice +oss sset * 9enefit )lan
/0pense 3as. 3ost +iability 2bligation ssets
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
9al.? Dec. 31? 2(1( 625?((( 51?(((?(((7 53?"5(?(((7 2?"5(?(((
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
8er#ice 3ost 5((?((( 55((?(((7
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
4nterest 3ost 517 3"5?((( 53"5?(((7
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
ctual return 526(?(((7 26(?(((
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
1ne0pected
gain*loss 527 4(?((( 54(?(((7
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
!orti'ation
of )83 1(5?((( 51(5?(((7
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
3ontributions 5%((?(((7 %((?(((
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
9enefits 6(?((( 56(?(((7
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
6ain*loss !ort..
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
Mournal entry
for 2(11 "6(?((( 5%((?(((7 51(5?(((7 54(?(((7 2$5?(((
234? 12*31*1( 625?((( -(-
9al.? Dec. 31? 2(11 52(?((( 54(?(((7 5"15?(((7 54?565?(((7 3?$5(?(((
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)age 2(-41
517 J3?"5(?((( Q 1(L D J3"5?(((
527 J26(?((( N 5J2?"5(?((( Q $L7 D J4(?(((
5b7 )ension /0pense.......................................................................... "6(?(((
)ension sset * +iability................................................................ 2$5?(((
3as.................................................................................. %((?(((
2t.er 3o!pre.ensi#e 4nco!e 5)837 ............................... 1(5?(((
2t.er 3o!pre.ensi#e 4nco!e 56*+7................................. 4(?(((
Pr' 20(722;!orti'ation of prior ser#ice cost using years-of-ser#ice !et.od.
2n Manuary 1? 2(1(? 8olano 4ncorporated a!ended its pension plan =.ic. caused an increase of
J6?(((?((( in its pro,ected benefit obligation. T.e co!pany .as 4(( e!ployees =.o are
e0pected to recei#e benefits under t.e co!panyAs defined-benefit pension plan. T.e personnel
depart!ent pro#ided t.e follo=ing infor!ation regarding e0pected e!ployee retire!entsC
/0pected &etire!ents
:u!ber of /!ployees 2n Dece!ber 31
4( 2(1(
12( 2(11
6( 2(12
16( 2(13
2( 2(14
4((
T.e co!pany plans to use t.e years-of-ser#ice !et.od in calculating t.e a!orti'ation of prior
ser#ice cost as a co!ponent of pension e0pense.
Instru%tions
)repare a sc.edule =.ic. s.o=s t.e a!ount of annual prior ser#ice cost a!orti'ation t.at t.e
co!pany =ill recogni'e as a co!ponent of pension e0pense fro! 2(1( t.roug. 2(14.
Soution 20(722
3o!putation of 8er#ice--ears
-ear Total
2(1( 4( 12( 6( 16( 2( 4((
2(11 12( 6( 16( 2( 36(
2(12 6( 16( 2( 24(
2(13 16( 2( 1$(
2(14 2( 2(
4( 24( 1$( 64( 1(( 1?2((
3ost )er 8er#ice -earC J6?(((?((( R 1?2(( D J5?(((.
2(-41
8olano 4ncorporated
3o!putation of nnual )rior 8er#ice 3ost !orti'ation
Total 3ost )er nnual
-ear 8er#ice--ears 8er#ice--ear !orti'ation
2(1( 4(( J5?((( J2?(((?(((
2(11 36( 5?((( 1?$((?(((
2(12 24( 5?((( 1?2((?(((
2(13 1$( 5?((( %((?(((
2(14 2( 5?((( 1((?(((
1?2(( J6?(((?(((
Pr' 20(728 C Pension DorAs"eet C Missin5 A.ounts
T.e accounting staff of /lias 4nc. .as prepared t.e follo=ing pension =or@s.eet. 1nfortunately?
se#eral entries in t.e =or@s.eet are not readable. T.e co!pany .as as@ed your assistance in
co!pleting t.e =or@s.eet and co!pleting t.e accounting tas@s related to t.e pension plan for
2(11.
Genera 0ourna Entries Me.o Re%or#

Ite.s
nnual
)ension
/0pense 3as.
234 ;-
)rior
8er#ice
3ost
234 ;
6ain*+oss
)ension
sset*+iability
)ro,ected
9enefit
2bligation
)lan
ssets
9alance? Man.
1? 2(11
1?"(( 3r. 4?2(( 2?5((
8er#ice cost 517 6((
4nterest cost 527 42(
ctual return 537 4$(
1ne0pected
gain
225 547
!orti'ation
of )83
557 $5
3ontributions 1?2(( 1?2((
9enefits 3(( 3((
+iability
increase
567 545
Mournal entry 5"7 5$7 5%7 51(7 5117
ccu!ulated 234? Dec. 31? 2(1( 1?"(( (
9alance? Dec. 31? 2(11 1?615 32( 1?5$5 5?465 3?$$(
Instru%tions
2(-42
,a- Deter!ine t.e !issing a!ounts in t.e 2(11 pension =or@s.eet? indicating =.et.er t.e
a!ounts are debits or credits.
,!- )repare t.e ,ournal entry to record 2(11 pension e0pense for /lias 4nc.
SO)UTION 20(728
5a7 9elo= is t.e co!pleted =or@s.eet? indicating debit and credit entries.
6eneral Mournal /ntries
>e!o &ecord
nnual
)ension
/0pense 3as.
234;)rior
8er#ice 3ost 234;6ain*
+oss
)ension
sset*+iability
)ro,ected
9enefit
2bligation
)lan
ssets
9alance? Man. 1? 2(11
1?"(( 3r.
4?2(( 3r. 2?5(( Dr.
8er#ice cost 6(( Dr. 6(( 3r.
4nterest cost 42( Dr. 42( 3r.
ctual return 4$( 3r. 4$( Dr.
1ne0pected gain 225 Dr. 225 3r.
!orti'ation of )83 $5 Dr. $5 3r.
3ontributions 1?2(( 3r. 1?2(( Dr.
9enefits 3(( Dr. 3(( 3r.
+iability increase 545 Dr. 545 3r.
Mournal entry $5( Dr. 1?2(( 3r. $5 3r. 32( Dr. 115 Dr.
ccu!ulated 234? Dec. 31? 2(1( 1?"(( Dr. (
9alance? Dec. 31? 2(11 1?615 Dr. 32( Dr. 1?5$5 3r. 5?465 3r. 3?$$( Dr.
5b7 )ension /0pense............................................................... $5(
2t.er 3o!pre.ensi#e 4nco!e 56*+7.................................. 32(
)ension sset*+iability........................................................ 115
3as.............................................................................. 1?2((
2t.er 3o!pre.ensi#e 4nco!e 5)837........................... $5
2(-43
Pr' 20(729 ( Pension DorAs"eet
Oo=ard 3orp. sponsors a defined-benefit pension plan for its e!ployees. 2n Manuary 1? 2(11?
t.e follo=ing balances related to t.is plan.
)lan assets 5!ar@et-related #alue7 J45(?(((
)ro,ected benefit obligation 6((?(((
)ension asset*liability 15(?((( 3r.
)rior ser#ice cost "5?(((
234 N +oss 65?(((
s a result of t.e operation of t.e plan during 2(11? t.e actuary pro#ided t.e follo=ing additional
data at Dece!ber 31? 2(11.
8er#ice cost for 2(11 J "5?(((
ctual return on plan assets in 2(11 45?(((
3ontributions in 2(11 115?(((
9enefits paid retirees in 2(11 "(?(((
8ettle!ent rate "L
/0pected return rate $L
#erage re!aining ser#ice life of acti#e e!ployees 1( years
Instru%tions
5a7 3o!pute pension e0pense for Oo=ard 3orp. for t.e year 2(11 by preparing a pension
=or@s.eet.
5b7 )repare t.e ,ournal entry for pension e0pense.
2(-44
5a7 Oo=ard 3orp.
)ension For@s.eet;2(11
6eneral Mournal /ntries >e!o &ecord
nnual
)ension
/0pense 3as.
234;)rior
8er#ice
3ost
234;
6ain*+oss
)ension
sset*+iability
)ro,ected
9enefit
2bligation
)lan
ssets
9alance? Man. 1? 2(11 15(?((( 3r. 6((?((( 3r. 45(?((( Dr.
8er#ice cost "5?((( Dr. "5?((( 3r.
4nterest cost< 42?((( Dr. 42?((( 3r.
ctual return 45?((( 3r. 45?((( Dr.
1ne0pected gain<< %?((( Dr. %?((( 3r.
!orti'ation of )83 2(?((( Dr. 2(?((( 3r.
!orti'ation of loss<<< 5(( Dr. 5(( 3r.
3ontributions 115?((( 3r. 115?((( Dr.
9enefits "(?((( Dr. "(?((( 3r.
Mournal entry for 2(11 1(1?5(( Dr. 115?((( 3r. 2(?((( 3r. %?5(( 3r. 43?((( Dr.
ccu!ulated 234? Dec. 31? 2(1( "5?((( Dr. 65?((( Dr.
9alance? Dec. 31? 2(11 55?((( Dr. 55?5(( Dr. 1("?((( 3r. 64"?((( 3r. 54(?((( Dr.
<J42?((( D J6((?((( T .(".
<<J%?((( D 5J45(?((( T .($7 N J45?(((.
<<<
-ear
1*1 )ro,ected
9enefit
2bligation
Value of 1*1
)lan ssets
1(L
3orridor
ccu!ulated
234 56*+7? 1*1
>ini!u!
!orti'ation of
+oss for 2(11
2(11 J6((?((( J45(?((( J6(?((( J65?((( <J5((<<<<
<<<<5J65?((( N J6(?(((7 D J5?((( R 1( D J5((.
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SO)UTION 20(729 53ontinued7
5b7
)ension /0pense............................................................................... 1(1?5((
)ension sset*+iability....................................................................... 43?(((
2t.er 3o!pre.ensi#e 4nco!e 5)837....................................... 2(?(((
2t.er 3o!pre.ensi#e 4nco!e 56*+7......................................... %?5((
3as.......................................................................................... 115?(((
2(-46
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6
IFRS 3UESTIONS
TrueEFase
1. T.e accounting for defined-benefit pension plans is t.e sa!e under 1.8. 6) and
i6).
2. )rior ser#ice cost is recogni'ed on t.e balance s.eet under bot. 1.8. 6) and i6).
3. )rior ser#ice cost is a!orti'ed into inco!e o#er t.e e0pected ser#ice li#es of e!ployees
under bot. 1.8. 6) and i6).
4. 1nder i6) co!panies !ay recogni'e actuarial gains and losses in inco!e
i!!ediately.
5. 1nder 1.8. 6) co!panies !ay eit.er recogni'e actuarial gains and losses in inco!e
i!!ediately or a!orti'e t.e! o#er t.e e0pected ser#ice li#es of e!ployees.
Ans+ers to TrueEFaseF
1. False
2. False
3. True
4. True
5. False
Muti&e C"oi%e
1. T.e 4nternational ccounting 8tandards 9oard .as proposed c.anges to i6) pension
accounting including all of t.e follo=ing e0cept
a. eli!ination of s!oot.ing #ia t.e corridor approac..
b. different presentation of pension costs in t.e inco!e state!ent.
c. reBuiring recognition of actuarial gains and losses o#er t.e e0pected ser#ice li#es of
e!ployees.
d. a ne= category of pensions for accounting purpose N Wcontribution-based pro!ises.X
2. >idland 3o!pany follo=s 1.8. 6) for its e0ternal financial reporting =.ereas 9ailey
3o!pany follo=s i6) for its e0ternal financial reporting. T.e a!ount contributed by
>idland for its defined contribution plan for 2(11 a!ounted to J4%?((( and t.e a!ount
contributed by 9ailey for its defined contribution plan for 2(11 a!ounted to J"6?(((. T.e
re!aining ser#ice li#es of e!ployees at bot. fir!s is esti!ated to be 1( years. F.at is t.e
a!ount of e0pense related to pension costs recogni'ed by eac. co!pany in its inco!e
state!ent for t.e year ended Dece!ber 31? 2(11H
>idland 9ailey
a. J 4?%(( J"6?(((
b. J4%?((( J"6?(((
c. J4%?((( J "?6((
d. J 4?%(( J "?6((
2(-46
3o!pany follo=s i6) for its e0ternal financial reporting. 9ot. co!panies .a#e defined-
benefit pension plans. t Dece!ber 31? 2(11? prior to any ad,usting entries? >idland
3o!panyEs actuarial loss sub,ect to a!orti'ation*recognition a!ounted to J4%?((( and
9ailey 3o!panyEs actuarial loss sub,ect to a!orti'ation*recognition a!ounted to J"6?(((.
T.e re!aining ser#ices li#es of e!ployees at bot. fir!s is esti!ated to be 1( years. F.at
is t.e !a0i!u! a!ount of loss t.at could be recogni'ed by eac. co!pany in its inco!e
>idland 9ailey
a. J 4?%(( J"6?(((
b. J4%?((( J"6?(((
c. J4%?((( J "?6((
d. J 4?%(( J "?6((
4. F.ic. of t.e follo=ing is true =it. regard to pension accounting under 1.8. 6) and
i6)H
a. ccounting for defined-benefit pensions is typically a less i!portant issue in t.e 1. 8.
t.an in ot.er parts of t.e =orld.
b. T.e accounting for defined-benefit pension plans is t.e sa!e under 1.8. 6) and
i6).
c. )rior ser#ice cost is recogni'ed on t.e balance s.eet under bot. 1.8. 6) and
i6).
d. )rior ser#ice cost is a!orti'ed into inco!e o#er t.e e0pected ser#ice li#es of
e!ployees under bot. 1.8. 6) and i6).
5. )ension liabilities =ill be i!pacted in countries =.ere population aging is an issue.
ccording to t.e te0t? =.ic. of t.e follo=ing countries*areas is t.e !ost rapidly aging in
t.e de#eloped =orldH
a. Mapan
b. /urope
c. 1nited 8tates
d. ll t.ree areas are aging at t.e sa!e appro0i!ate rate? 24L.
3o!pany follo=s i6) for its e0ternal financial reporting. T.e re!aining ser#ice li#es of
e!ployees at bot. fir!s is esti!ated to be 1( years. T.e follo=ing infor!ation is a#ailable
for eac. co!pany at Dece!ber 31? 2(11 related to t.eir respecti#e defined-benefit
pension plans.
>idland 9ailey
:et of pension assets and liabilities J1((?((( J13(?(((
)rior ser#ice cost J24(?((( J1"5?(((
F.at is t.e a!ount of prior ser#ice cost recogni'ed by eac. co!pany in its inco!e
>idland 9ailey
a. J24(?((( J1"5?(((
b. J 24?((( J1"5?(((
c. J 24?((( J 1"?5((
d. J24(?((( J 1"?5((
2(-4"
". >idland 3o!pany follo=s 1.8. 6) for its e0ternal financial reporting =.ereas 9ailey
pension plans.
>idland 9ailey
)rior ser#ice cost J24(?((( J1"5?(((
F.at is t.e a!ount of )ension sset*+iability recogni'ed by eac. co!pany in its inco!e
>idland 9ailey
a. J1((?((( J13(?(((
b. J 1(?((( J13(?(((
c. J1((?((( J 13?(((
d. J 1(?((( J 13?(((
$. >idland 3o!pany follo=s 1.8. 6) for its e0ternal financial reporting =.ereas 9ailey
pension plans.
>idland 9ailey
)rior ser#ice cost 5after a!orti'ation? if any7 J24(?((( J1"5?(((
F.at is t.e a!ount of )rior 8er#ice 3ost recogni'ed by eac. co!pany on its balance
s.eet at Dece!ber 31? 2(11H
>idland 9ailey
a. J24(?((( J1"5?(((
b. J-(- J1"5?(((
c. J-(- J-(-
d. J24(?((( J-(-
%. T.e 489 and t.e F89 are studying se#eral issues related to accounting for pensions
including all of t.e follo=ing e0cept
a. eli!inating s!oot.ing pro#isions.
b. reBuiring co!panies to report actual asset returns and any actuarial gains and losses
directly in t.e inco!e state!ent.
c. reBuiring co!panies to report #arious co!ponents of pension e0pense? suc. as
interest cost? separately in t.e inco!e state!ent along =it. ot.er interest e0pense.
d. ll of t.e abo#e issues are under study by t.e 489 and t.e F89.
1(. F.ic. of t.e follo=ing is false regarding t.e accounting for pensions under i6) and
1.8. 6)H
a. )rior ser#ice cost is recogni'ed on t.e balance s.eet under 1.8. 6) only.
b. 1nder 1.8. 6) co!panies !ust a!orti'e actuarial gains and losses o#er t.e
e0pected ser#ice li#es of e!ployees.
c. )rior ser#ice cost is a!orti'ed into inco!e o#er t.e e0pected ser#ice li#es of
e!ployees under 1.8. 6) only.
d. 1nder i6) co!panies !ay recogni'e actuarial gains and losses in inco!e
i!!ediately.
2(-4$
Ans+ers to Muti&e C"oi%eF
1. c
2. b
3. a
4. d
5. a
6. c
". a
$. d
%. d
1(. c
S"ort Ans+er
1. 9riefly describe so!e of t.e si!ilarities and differences bet=een 1.8. 6) and i6) =it.
respect to t.e accounting for pensions.
1. T.e pri!ary i6) literature .as recently been a!ended? resulting in significant
con#ergence bet=een i6) and 1.8. 6) in t.is area. For e0a!ple? i6) and 1.8.
6) separate pension plans into defined contribution plans and defined benefit plans.
T.e accounting for defined contribution plans is si!ilar. For defined benefit plans? bot.
i6) and 1.8. 6) recogni'e t.e net of t.e pension assets and liabilities on t.e
balance s.eet and bot. 6)s a!orti'e prior ser#ice costs into inco!e o#er t.e
e0pected ser#ice li#es of e!ployees.
:otable differences are t.at 517 1nli@e 1.8. 6)? =.ic. recogni'es prior ser#ice cost on
t.e balance s.eet 5as an ele!ent of ccu!ulated 2t.er 3o!pre.ensi#e 4nco!e7? i6)
does not recogni'e prior ser#ice costs on t.e balance s.eet? 527 1nder i6) co!panies
.a#e t.e c.oice of recogni'ing actuarial gains and losses in inco!e i!!ediately or
a!orti'ing t.e! o#er t.e e0pected re!aining =or@ing li#es of e!ployees. 1.8. 6)
does not per!it c.oiceG actuarial gains and losses 5and prior ser#ice cost7 are recogni'ed
in ccu!ulated 2t.er 3o!pre.ensi#e 4nco!e and a!orti'ed to inco!e o#er re!aining
ser#ice li#es.
2. 9riefly discuss t.e 489*F89 con#ergence efforts in t.e area of postretire!ent-benefit
accounting.
2. T.e F89 and t.e 489 are =or@ing collaborati#ely on a postretire!ent-benefit pro,ect.
s discussed in t.e c.apter? t.e F89 .as issued a rule addressing t.e recognition of
benefit plans in financial state!ents. T.e F89 .as begun =or@ on t.e second p.ase of
t.e pro,ect? =.ic. =ill ree0a!ine e0pense !easure!ent of postretire!ent benefit plans.
T.e 489 also .as added a pro,ect in t.is area but t.ey are on different sc.edule. T.e
489 .as recently issued a discussion paper on pensions proposingC 517 eli!ination of
s!oot.ing #ia t.e corridor approac.? 527 a different presentation of pension costs in t.e
inco!e state!ent? and 537 a ne= category of pensions for accounting purposes - so-called
Wcontribution-based pro!isesX.
2(-4%

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CHAPTER 20

ACCOUNTING FOR PENSIONS

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