Which of the following statements is true regarding a defined contribution pension plan?
1. Which of the following statements is true regarding a defined contribution pension plan?
The pension benefits to be received by the employee during retirement are defined in the plan.
Defined contribution plans are the most popular type of pension plan for large corporations.
Defined contribution plans do not define the required benefits that must be paid to retired employees.
Employers that use defined contribution plans are assuming more risks than employers that use defined benefit plans.
2. According to current GAAP, termination benefits paid to an employee should be
charged to an intangible asset and amortized straight line over the next 15 years
charged to a loss
charged to retained earnings
charged to an intangible asset and amortized over the projected years of service of the remaining work force
3. Which statement is not true?
In the computation of pension expense, a negative return on plan assets can be added.
The amount of prior service cost is not included as an asset or a liability.
Interest cost is equal to the projected benefit obligation at the end of the period multiplied by the discount rate used by the company.
A lower than expected mortality rate creates a pension loss to a company.
4. Current GAAP regarding employers accounting for defined benefit pension plans defines an underfunded pension at the end of the period when the
fair value of plan assets exceeds the projected benefit obligation
projected benefit obligation exceeds the fair value of plan assets
accumulated benefit obligation exceeds the fair value of the plan assets
fair value of the plan assets exceed the accumulated benefit obligation
5. If a pension plan amendment is adopted and retroactive benefits are granted to employees, the amount of the prior service cost at the date of grant is accounted for
as an intangible asset and liability that are recognized on the plan amendment date
as a prior period adjustment for the total amount of the prior service cost that is reported on the statement of retained earnings
as the total amount of the prior service cost that is recognized as an expense on the current period s income statement
initially as an unamortized amount to be included in the computation of pension expense over future periods
6. In 2011, the Marsha Company closed a manufacturing plant. The resulting actuarial loss should be
recognized over current and future periods using the straight line method
recognized over current and future periods through adjustments to the service cost and prior service cost
included in income for 2011
matched to past results with a prior period adjustment
7. Which of the following items attributable to a defined benefit pension plan would be recognized on a company s balance sheet?
Projected Benefit Pension Plan Prepaid Pension
Obligation Assets Costs
Yes Yes Yes
Yes Yes No
Yes No No
No No Yes
8. Disclosures for a defined benefit pension plan should include which of the following?
I. number of beneficiaries
II. reconciliation of the ending value of the projected benefit obligation
III. reconciliation of the ending fair value of the plan assets
IV. the composition of plan assets
V. the discount rate used
VI. expected long term rate of return on plan assets
I, II, III, IV
I, III, V, VI
II, III, V, VI
III, IV, V, VI
9. In 2010, the Barbara Company initiated a defined benefit pension plan. It recorded $240,000 as pension expense and paid $280,000 to a funding agency. As a result, Barbara will report
pension assets of $280,000 and pension liabilities of $240,000
an accrued liability of $50,000
service cost of $280,000 and unfunded prior service cost of $40,000
prepaid pension cost of $40,000
none of these
10. A company s net periodic pension cost (expense) includes all of the following items except
employer s contribution to the pension fund
amortization of unrecognized prior service cost
interest cost on the projected benefit obligation
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