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Question 1

Question 2

5 out of 5 points

Which of the following items on a Defined Benefit Pension Worksheet are not in both of the following Worksheet columns?

Answer

Selected Answer: e. PSC Amortization: Pension Expense & OCI-GL columns

Correct Answer: e. PSC Amortization: Pension Expense & OCI-GL columns

Response Feedback:

PSC Amortization is shown in the Pension Expense and the OCI-PSC columns, not the OCI-G/L column

5 out of 5 points

The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

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Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Service Cost 32,000Actual Return 30,000OCI-PSC Amortization 25,000Contributions 54,000Benefits 36,000

If the Expected Rate is 11%, and the Settlement Rate is 10%, how much will this Plan reduce the 2013 net income of Pi Co.?

Answer

Selected Answer: b. 74,000

Correct Answer: b. 74,000

Response Feedback:

32k Service Cost + 50k Interest (10% Settlement Rate * 500k Beg. PBO) – 30k Actual Return - 3k Unexpected Loss (33k Expected Return = 11% Expected Rate * 300k Beg. Plan Assets vs. 30k Actual Return) + 25k PSC Amortization = 74,000 Pension Expense for 2013, reducing Pi’s 2013 NI.

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Question 3

Question 4

5 out of 5 points

Which of the following items on a Defined Benefit Pension Worksheet are not in both of the following Worksheet columns?Answer

Selected Answer: b. Unexpected Loss: Pension Expense & PBO columns

Correct Answer: b. Unexpected Loss: Pension Expense & PBO columns

Response Feedback:

Unexpected Loss (or Gain) is shown in the Pension Expense and the OCI-G/L columns, not the PBO column

5 out of 5 points

Which of the following items are not actuarially determined in a defined benefit pension plan?

Answer

Selected Answer: c.

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Question 5

BenefitsCorrect Answer: c.

BenefitsResponse Feedback:

Benefits are defined in a defined benefit pension plan, and when actually paid to a retiring employee (which is when Benefits are recorded on the Pension Worksheet, decreasing both the PBO and the Plan Assets), an actuary is not required because the Pension Contract would define the amount required to be paid, something like, “80% of the average annual salary for the 3 years of employment with the highest annual salaries”, an amount which does not require the skills of an actuary because the benefit is “defined” and based on past amounts, not predicted future amounts requiring actuarial assumptions. All the other defined benefit item are based, wholly or partly, on actuarially determined assumptions.

5 out of 5 points

1. The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Pension Expense for 2013 70,000Contributions for 2013 60,000OCI-PSC 25,000 cr adj. for 2013 w/a 100,000 dr Beg Bal.OCI-G/L 7,000 dr adj. for 2013 w/a 50,000 cr Beg. Bal.

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Question 6

What is the 2013 adjustment to the Pension Asset/Liability account?

Answer

Selected Answer: d. 8,000 dr

Correct Answer: d. 8,000 dr

Response Feedback: 2013 JE: Pension Expense 70,000 (Dr)

OCI-G/L 7,000 (Dr) Pension A/L (to balance JE) 8,000 (Dr)

Cash 60,000 (Cr)

OCI-PSC 25,000 (cr)

5 out of 5 points

1. The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

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Question 7

Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Service Cost 32,000Actual Return 44,000OCI-PSC Amortization 25,000Contributions 54,000Benefits 36,000

If the Settlement Rate is 11%, the Expected Rate is 10%, the 12/31/12 OCI-PSC is $100,000 dr, and the OCI G/L is $50,000 dr, how much will this Plan decrease Pi’s total stockholders’ at 12/31/13?

Answer

Selected Answer: b. 111,000

Correct Answer: b. 111,000

Response Feedback:

100k dr Other Comprehensive Income-Prior Service Cost Beg Bal. - 25k cr OCI-PSC Amortization + 50k dr OCI Loss – 14k cr Unexpected Gain (30k Expected Return = 10% Expected Rate * 300k Beg. Plan Assets vs. 44k Actual, increasing Pension Expense-dr, and decreasing OCI-G/L cr) = 111,000 dr Accumulated Other Comprehensive Loss on the last line of Pi’s 12/31/13 BS SE section, reducing Total SE

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5 out of 5 points

1. The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Service Cost 32,000Actual Returns 30,000OCI-PSC Amortization 25,000Contributions 54,000Benefits 36,000

If the Expected Rate is 11%, and the Settlement Rate is 10%, what’s the 12/31/13 PBO?

Answer

Selected Answer: a. 546,000

Correct Answer: a. 546,000

Response Feedback:

500k Beg Bal. + 32k Service Cost + 50k Interest (10% Settlement Rate * 500k Beg. PBO) -36k Benefits paid = 546,000 PBO at 12/31/13

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Question 8

Question 9

5 out of 5 points

Interest cost included in pension expense recognized for a period by an employer sponsoring a defined-benefit pension plan represents the (CPA Adapted):

Answer

Selected Answer: c. increase in the projected benefit obligation due to the passage of time.

Correct Answer: c. increase in the projected benefit obligation due to the passage of time.

Response Feedback:

The PBO is the present value of vested and nonvested benefits accrued to date based on employees’ future salary levels. The annual interest included as an increase to pension expense in a defined-benefit plan represents the annual reversal of this present valuing of the PBO. At the end of each year, those expected future benefits are now one year closer, therefor the present value is higher than it was the year before.

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5 out of 5 points

1. The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Service Cost 32,000Actual Return 30,000OCI-PSC Amortization 25,000Contributions 54,000Benefits 36,000

If the Expected Rate is 11%, and the Settlement Rate is 10%, what’s the 12/31/13 Plan Assets?

Answer

Selected Answer: b. 348,000

Correct Answer: b. 348,000

Response Feedback:

300k Beg Bal. + 30k Actual Return + 54k Contributions received – 36k Benefits paid = 348,000 Plan Assets at 12/31/13

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Question 10

Question 11

5 out of 5 points

Which of the following statements is false (applying GAAP wherever appropriate)?

Answer

Selected Answer:

b. Because of significantly less cost & risk to employers, there are now less 401(k) plans than before.

Correct Answer:

b. Because of significantly less cost & risk to employers, there are now less 401(k) plans than before.

Response Feedback:

401(k) plans are defined contribution plans, for which there are now more than before because the trend is toward more defined contribution plans, which are much less costly and risky than defined benefit plans.

5 out of 5 points

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Question 12

At December 31, 2013, the following information was provided by the Vargas Corp. pension plan administrator:Fair value of plan assets: $4,500,000Accumulated benefit obligation: $5,580,000Projected benefit obligation: $7,700,000What is the amount of the pension liability that should be shown on Vargas' December 31, 2013 balance sheet (CPA Adapted):

Answer

Selected Answer: b. $3,200,000

Correct Answer: b. $3,200,000

Response Feedback:

The Pension Liability should be based on the difference between the 7.7m PBO and the 4.5m Plan Assets = 3.2m

5 out of 5 points

Logan Corp., a company whose stock is publicly traded, provides a noncontributory defined-benefit pension plan for its employees. The company's actuary has provided the following information for the year ended December 31, 2013:Projected benefit obligation: $650,000

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Accumulated benefit obligation: $525,000Fair value of plan assets: $825,000Service cost: $240,000Interest on projected benefit obligation: $24,000Amortization of prior service cost: 60,000Expected and actual return on plan assets: 82,500

The market-related asset value equals the fair value of plan assets. No contributions have been made for 2013 pension cost. In its December 31, 2013 balance sheet, Logan should report a pension asset / liability of (CPA Adapted):

Answer

Selected Answer: b. Pension asset of $175,000

Correct Answer: b. Pension asset of $175,000

Response Feedback:

The Employer Co. Pension Asset/Liability account represents the difference between the Plan PBO and the Plan Assets. In this case, the Plan Assets of 825k are greater than the PBO of 650k, resulting in a Pension Asset of $175,000.

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Question 135 out of 5 points

1. The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Service Cost 32,000Actual Return 44,000OCI-PSC Amortization 25,000Contributions 54,000Benefits 36,000

If the Settlement Rate is 11% and the Expected Rate is 10%, what’s the 12/31/13 PBO?

Answer

Selected Answer: a. 551,000

Correct Answer: a. 551,000

Response Feedback:

500k Beg Bal. + 32k Service Cost + 55k Interest (11% Settlement Rate * 500k Beg. PBO)-36k Benefits paid = 551,000 PBO at 12/31/13

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Question 145 out of 5 points

The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Service Cost 32,000Actual Return 44,000OCI-PSC Amortization 25,000Contributions 54,000Benefits 36,000

If the Settlement Rate is 11% and the Expected Rate is 10%, what’s the 2013 Pension Expense?

Answer

Selected Answer: a. 82,000

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Question 15

Correct Answer: a. 82,000

Response Feedback:

32k Service Cost + 55k Interest (11% Settlement Rate * 500k Beg. PBO) – 44k Actual Return + 14k Unexpected Gain (30k Expected Return = 10% Expected Rate * 300k Beg. Plan Assets vs. 44k Actual Return) + 25k PSC Amortization = 82,000 Pension Expense for 2013

5 out of 5 points

The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Service Cost 32,000Actual Return 44,000OCI-PSC Amortization 25,000Contributions 54,000Benefits 36,000

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Question 16

If the Settlement Rate is 11% and the Expected Rate is 10%, what’s the 12/31/13 Plan Assets?

Answer

Selected Answer: e. 362,000

Correct Answer: e. 362,000

Response Feedback:

300k Beg Bal. + 44k Actual Return + 54k Contributions received – 36k Benefits paid = 362,000 Plan Assets at 12/31/13

5 out of 5 points

Seigel Co. maintains a defined-benefit pension plan for its employees. At each balance sheet date, Yeager should report a pension asset / liability equal to the (CPA Adapted):

Answer

Selected Answer: b. funded status relative to the projected benefit obligation.

Correct Answer: b. funded status relative to the projected benefit obligation.

Response Feedback:

The Pension Asset/Liability account represents the difference between the PBO and the

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Question 17

Feedback: Plan Assets (the funded status). A Pension Liability is required when the PBO is more than the Plan Assets whereas a Pension Asset is required when the Plan Assets are greater than the PBO.

5 out of 5 points

1. The Pi Co. Pension Plan Worksheet for 12/31/13 showed the following (assume normal dr/cr adjustments & balances):

Pension Liability 12/31/12 Balance 200,000PBO 12/31/12 Balance 500,000Plan Assets 12/31/12 Balance 300,000Service Cost 32,000Actual Return 44,000OCI-PSC Amortization 25,000Contributions 54,000Benefits 36,000

If the Settlement Rate is 11%, the Expected Rate is 10%, the 12/31/12 OCI-PSC is $100,000 dr, the OCI G/L is $60,000 dr, and the average service life of all covered employees is 16 years, what is the amount of the corridor amortization for 2013?

Answer

Selected Answer: b. 625

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Question 18

Correct Answer: b. 625

Response Feedback:

60k OCI-G/L Beg Bal. – 50k (10% corridor * 500k PBO Beg.Bal., the larger of PBO or Plan Assets) divided by 16 years (average service life) = 625 corridor amortization, increasing Pension Expense, dr, and decreasing OCI-G/L, cr.

5 out of 5 points

1. The following information pertains to Hopson Co.'s pension plan:Actuarial estimate of projected benefit obligation at 1/1/13 $82,000Settlement rate 10%Service costs for 2013 $18,000Pension benefits paid during 2013 $15,000If no change in actuarial estimates occurred during 2013, and actual return equals expected return which equals employer contributions, then Hopson's projected benefit obligation at December 31, 2013 was (CPA Adapted):

Answer

Selected Answer: d. $93,200

Correct Answer: d. $93,200

Response Feedback:

82k Beg.PBO + 18k Service Cost + 8.2k (82k PBO * 10% Settlement Rate) – 15k Benefits = $93,200 Ending PBO.

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Question 19

Question 20

5 out of 5 points

Which of the following is not a characteristic of a defined-contribution pension plan?

Answer

Selected Answer: d. The benefits to be received by employees are usually determined by future salaries.

Correct Answer: d. The benefits to be received by employees are usually determined by future salaries.

Response Feedback:

A defined contribution plan defines only the amount of contribution that the employer must make each year based on a formula, something like 3% of current employees’ annual compensation paid, not based on how much benefit a retiring employee will receive. The formula generally would not require any actuarial assumptions and the accounting is much less complicated than that required for a defined benefit plan. Because the employer is only responsible for what amount gets funded to the Plan, any gain or loss from invested plan assets affects the benefit amount an employee will receive, not how much an employer must contribute. Also, the average amount needed to fund a defined contribution plan is generally substantially less than the average amount needed to fund a defined benefit plan.

5 out of 5 points

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Ohlman, Inc. maintains a defined-benefit pension plan for its employees. As of December 31, 2013, the market value of the plan assets is less than the accumulated benefit obligation. The projected benefit obligation exceeds the accumulated benefit obligation. In its balance sheet as of December 31, 2013, Ohlman should report a liability in the amount of the (CPA Adapted):

Answer

Selected Answer: b. excess of the projected benefit obligation over the fair value of the plan assets.

Correct Answer: b. excess of the projected benefit obligation over the fair value of the plan assets.

Response Feedback:

The Pension Liability account represents the excess of the PBO over the Plan Assets, whereas the Pension Asset account represents the excess of the Plan Assets over the PBO.