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Exam 17: Pensions and Other Postretirement Benefits

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Question 41

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The EPBO for a particular employee on January 1, 2018, was $30,000. The APBO at the beginning of the year was $6,000. The appropriate discount rate for this postretirement plan is 5%. The employee is expected to serve the company for a total of 25 years with 5 of those years already served as of January 1, 2018. What is the APBO at December 31, 2018?

A) $6,300.
B) $7,200.
C) $7,500.
D) $7,560.

E) None of the above
F) B) and C)

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Question 42

Multiple Choice

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Revenue and expense items and components of other comprehensive income can be reported in the statement of shareholders' equity using:

A) U.S. GAAP.
B) IFRS.
C) Both U.S. GAAP and IFRS.
D) Neither U.S. GAAP nor IFRS.

E) None of the above
F) All of the above

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Question 43

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Listed below are six terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Interest cost

Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement. Ralph Young was hired at the beginning of 1977 by Oregon after turning age 22 and is expected to retire at the end of 2020 (age 60) . The discount rate is 4%. The plan is unfunded. The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839. The PV of $1 where n = 2 and i = 4% is 0.92456. - What is the present value of Ralph's net benefits as of his expected retirement date, rounded to the nearest dollar?

Pension data for Sam Adams Inc. include the following for the current calendar year: Discount rate, 8% Expected return on plan assets, 10% Actual return on plan assets, 9% Service cost, $400,000 $\begin{array} { | l | r | } \hline \text { January 1: } & \\\hline \text { PBO } & 3,000,000 \\\hline \text { ABO } & 2,000,000 \\\hline \text { Plan assets } & 3,200,000 \\\hline \text { Amortization of prior service cost } & 30,000 \\\hline \text { Amortization of net gain } & 7,000 \\\hline \text { December 31: } & \\\hline \text { Cash contributions to pension } & \\ \text { fund } & \$ \mathbf { 2 7 5 , 0 0 0 }\\\hline \text { Benefit payments to retirees } & \mathbf { 3 1 0 , 0 0 0 } \\\hline\end{array}$ Required: 1) Determine pension expense for the year. 2) Prepare the journal entries to record pension expense and funding for the year.

Listed below are six terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Service cost

Brown Industries provides postretirement health care benefits to employees. On January 1 of the current calendar year, the following data were available. $\begin{array} { | l | r | } \hline \text { Prior service cost } & \$ 50,000 \\\hline \mathrm { APBO } & \$ 480,000 \\\hline \text { Fair value of plan assets } & \text { none } \\\hline \begin{array} { l } \text { Average remaining service period to } \\\text { retirement }\end{array} & 25 \text { years } \\\hline \begin{array} { l } \text { Average remaining service period to full } \\\text { eligibility }\end{array} & 20 \text { years } \\\hline\end{array}$ Management amortizes prior service cost on a straight-line basis. The interest rate is 10%. Service cost for the current year is $95,000. Required: 1) Calculate the prior service cost amortization for the current year. 2) Calculate the postretirement benefit expense for the current year. 3) Prepare the entry to record the postretirement benefit expense for the current year.

Scallion Company received the following reports of its defined benefit pension plan for the current calendar year: $\begin{array}{lrlr}\text { PBO } & & \text { Plan assets } \\\text { Balance, January 1 } & \$ 400,000 & \text { Balance, January 1 } & \$ 250,000 \\\text { Service cost } & 195,000 & \text { Actual return } & 30,000 \\\text { Interest cost } & 32,000 & \text { Annual contribution } & 110,000 \\\text { Benefits paid } & (80,000) & \text { Benefits paid } & (80,000) \\\text { Balance, December 31 } & \$ 547,000 & \text { Balance, December 31 } & \$ 310,000 \\\hline\end{array}$ - The long-term expected rate of return on plan assets is 10%. Assuming no other data are relevant, what is the pension expense for the year?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Accumulated benefit obligation

Suppan Service began the year with a net pension liability of $56 million (underfunded pension plan). Pension expense for the year included the following ($ in millions): service cost, $20; interest cost, $12; expected return on assets, $8; amortization of net gain, $4. Required: Prepare the appropriate general journal entry to record Suppan's pension expense.

Which of the following is not included among the assumptions needed to estimate postretirement health care benefits?

Amortizing prior service cost for pensions and other postretirement benefit plans will:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Gain on plan assets

The following incomplete (columns have missing amounts) pension spreadsheet is for the current year for First Republic Corporation (FRC) . - What was FRC's pension expense for the year?

Differentiate between the projected benefit obligation, the accumulated benefit obligation, and the vested benefit obligation.

Fox Company received the following reports of its defined benefit pension plan for the current calendar year: -The long-term expected rate of return on plan assets is 8%. Assuming no other data are relevant, what is the pension expense for the year?

At December 31, 2017, Mongo, Inc., reported in its balance sheet a net loss of $3 million related to its pension plan. The actuary for Mongo at the end of 2018 increased her estimate of future salary levels. Mongo's entry to record the effect of this change will include:

Silver Springs Company has an unfunded retiree health care plan. Each of the company's four employees has been with the organization since its inception at the beginning of 2017. As of the end of 2018, the actuary estimates the total net cost of providing benefits to employees during their retirement years to have a present value of $196,000. Each of the employees will become fully eligible for benefits after 28 more years of service, but aren't expected to retire for 30 more years. The interest rate is 8%. Required: 1) What is the expected postretirement benefit obligation at the end of 2018? 2) What is the accumulated postretirement benefit obligation at the end of 2018?

Bernard Corporation has an unfunded postretirement health care benefit plan. Life insurance and medical care benefits are provided to employees who render 12 years of service and attain age 55 while in service to the company. At the end of 2018, Teri Clark is 35. She was hired by Bernard five years ago at age 30 and is expected to retire at the age of 62. The expected postretirement benefit obligation for Teri is $50,000 at the end of 2018 and $60,000 at the end of 2019. Required: Calculate the accumulated postretirement benefit obligation at the end of 2018 and 2019 and the service cost for 2018 and 2019 pertaining to Teri.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Return on plan assets exceeds the expectation