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A company's defined benefit pension plan had a PBO of $265,000 on January 1, 2018. During 2018, pension benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service cost for 2018 was $80,000. Plan assets (fair value) increased during the year by $45,000. The amount of the PBO at December 31, 2018, was:


A) $225,000.
B) $305,000.
C) $331,500.
D) None of these answer choices are correct.

E) A) and C)
F) C) and D)

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What is the theoretical and practical trade-off when measuring the pension liability using the projected benefit obligation compared to the accumulated benefit obligation?

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The PBO uses projected future compensati...

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In its 2018 annual report to shareholders, JDS Corporation disclosed the following information about its pension plan:  ($ in millions) 20182017 PROJECTED BENEFIT  OBLIGATION  Beginning balance $120.0$102.2 Service cost 4.15.5 Interest cost 7.06.5 Benefits paid (2.6)(4.4) Actuarial loss 6.6‾11.4‾ Ending balance $135.1$121.2\begin{array} { | l | r | r | } \hline \text { (\$ in millions) } & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { PROJECTED BENEFIT } & & \\\text { OBLIGATION } & & \\\hline \text { Beginning balance } & \$ 120.0 & \$ 102.2 \\\hline \text { Service cost } & 4.1 & 5.5 \\\hline \text { Interest cost } & 7.0 & 6.5 \\\hline \text { Benefits paid } & ( 2.6 ) & ( 4.4 ) \\\hline \text { Actuarial loss } & \underline { 6.6 } & \underline { 11.4 } \\\hline \text { Ending balance } & \$ 135.1 & \$ 121.2 \\\hline\end{array} The increase in the underfunded projected benefit obligation was primarily attributable to a reduction in the assumed discount rate. This was combined with the effect of increases in benefits under the terms of the plan in excess of current inflation rates. The net result was reflected as a reduction in accumulated other comprehensive income. -Why did the loss result in a reduction in accumulated other comprehensive income?

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Gains and losses become part of either a...

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JL Health Services reported a net loss-AOCI in last year's balance sheet. This year, the company revised its estimate of future salary levels causing its PBO estimate to decline by $24. Also, the $48 million actual return on plan assets was less than the $54 million expected return. As a result:


A) The statement of comprehensive income will report a $6 million gain and a $24 million loss.
B) The net pension liability will increase by $18 million.
C) Accumulated other comprehensive income will increase by $18 million.
D) The net pension liability will decrease by $24 million.

E) B) and D)
F) A) and D)

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The attribution approach required by GAAP for postretirement health care plans is to assign:


A) An equal fraction of the EPBO to each year the employee is on the company payroll.
B) An equal fraction of the APBO to each year the employee is on the company payroll.
C) An equal fraction of the APBO to each year of service from the employee's hire date to the employee's full eligibility date.
D) An equal fraction of the EPBO to each year of service from the employee's hire date to the employee's full eligibility date.

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

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Prior to 1993, postretirement benefits other than pensions generally were accounted for on the:


A) Accrual basis.
B) Cash basis.
C) Modified accrual basis.
D) Hybrid basis.

E) B) and D)
F) All of the above

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Blue Company has a plan whereby it pays for health care insurance for all employees after they retire. Red Company has a defined benefit pension plan for its employees. With respect to these plans, which of the following statements is not true?


A) Red Company's obligation tends to increase in a more steady pattern than that of Blue Company.
B) Red Company's accounting for its obligation is similar to that of Blue Company.
C) Red Company's obligation is less difficult to estimate than that of Blue Company.
D) Red Company is less likely to fund its obligation than is Blue Company.

E) C) and D)
F) A) and B)

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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 other comprehensive income


A) Included in the calculation of pension expense.
B) Retirement benefits specified by formula.
C) Reduce(s) both the PBO and plan assets.
D) Protection for employee pension rights.
E) Reported as a shareholders' equity account.

F) A) and D)
G) B) and C)

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A company's total obligation for postretirement benefits is measured by the:


A) APBO.
B) HMOP.
C) HOBO.
D) EPBO.

E) A) and D)
F) A) and B)

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The income statement of Starboard Industries includes $12 million for the amortization of a loss resulting from the company's actuary changing an estimate used in calculating the obligation for the pension plan. Does Starboard Industries prepare its financial statements according to U.S. GAAP or IFRS?

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Starboard Industries prepares its financ...

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Oberon Company provides postretirement health care benefits to employees who provide at least 10 years of service and reach the age of 65 while in service. On January 1 of the current year, the following plan-related data were available. Oberon Company provides postretirement health care benefits to employees who provide at least 10 years of service and reach the age of 65 while in service. On January 1 of the current year, the following plan-related data were available. On January 1 of the current year, Oberon amended the plan to provide dental benefits. The actuary determines that the cost of making the amendment increases the APBO by $10,000,000. Management chooses to amortize this amount on a straight-line basis. The service cost is $60,000,000. The appropriate interest rate is 10%. Required: Calculate the postretirement benefit expense for the current year. On January 1 of the current year, Oberon amended the plan to provide dental benefits. The actuary determines that the cost of making the amendment increases the APBO by $10,000,000. Management chooses to amortize this amount on a straight-line basis. The service cost is $60,000,000. The appropriate interest rate is 10%. Required: Calculate the postretirement benefit expense for the current year.

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Pension plans typically require some minimum period of employment before benefits vest. What is the 1974 federal law governing vesting (as well as other aspects of pensions)? What are the vesting rules?

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The Employee Retirement Income Security ...

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Service cost with regard to pension plans:


A) increases pension expense and reduces the return on plan assets.
B) increases the projected benefit obligation and increases pension expense.
C) increases the projected benefit obligation and reduces plan assets.
D) increases pension expense and reduces plan assets.

E) A) and B)
F) A) and C)

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Data for 2018 were as follows: PBO, January 1, $240,000 and December 31, $270,000; pension plan assets (fair value) January 1, $180,000, and December 31, $230,000. The projected benefit obligation was underfunded at the end of 2018 by:


A) $30,000.
B) $60,000.
C) $20,000.
D) $40,000.

E) A) and C)
F) B) and C)

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What are the five components of postretirement benefit expense?

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(1) Service cost, (2) interest...

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The following data are for Guava Company's retiree health care plan for the current calendar year. The following data are for Guava Company's retiree health care plan for the current calendar year. - What is the correct entry to record postretirement benefit expense for the current year? A) B) \begin{array} { | l | r | r | } \hline \text { Postretirement benefit expense } & 3,900 & \\ \hline \text { Cash } & & 3,904\\\hline \end{array} C) \begin{array} { | l | c | c | } \hline \text { Postretirement benefit expense } & 4,000 & \\ \hline \text { APBO } & & 4,000 \\ \hline \end{array} D) \begin{array} { | l | l | l | } \hline \text { Postretirement benefit expense } & 7,600 & \\ \hline \text { APBO } & & 7,600\\\hline \end{array} - What is the correct entry to record postretirement benefit expense for the current year?


A) The following data are for Guava Company's retiree health care plan for the current calendar year. - What is the correct entry to record postretirement benefit expense for the current year? A) B) \begin{array} { | l | r | r | } \hline \text { Postretirement benefit expense } & 3,900 & \\ \hline \text { Cash } & & 3,904\\\hline \end{array} C) \begin{array} { | l | c | c | } \hline \text { Postretirement benefit expense } & 4,000 & \\ \hline \text { APBO } & & 4,000 \\ \hline \end{array} D) \begin{array} { | l | l | l | } \hline \text { Postretirement benefit expense } & 7,600 & \\ \hline \text { APBO } & & 7,600\\\hline \end{array}
B)  Postretirement benefit expense 3,900 Cash 3,904\begin{array} { | l | r | r | } \hline \text { Postretirement benefit expense } & 3,900 & \\\hline \text { Cash } & & 3,904\\\hline\end{array}
C)  Postretirement benefit expense 4,000 APBO 4,000\begin{array} { | l | c | c | } \hline \text { Postretirement benefit expense } & 4,000 & \\\hline \text { APBO } & & 4,000 \\\hline\end{array}
D)  Postretirement benefit expense 7,600 APBO 7,600\begin{array} { | l | l | l | } \hline \text { Postretirement benefit expense } & 7,600 & \\\hline \text { APBO } & & 7,600\\\hline\end{array}

E) B) and C)
F) A) and D)

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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 less than the expectation


A) Caused by plan amendment.
B) Causes a loss-other comprehensive income.
C) Causes a gain-other comprehensive income.
D) Caused by changes in assumptions used to measure the PBO.
E) Pension plan assets exceed the PBO.

F) A) and B)
G) None of the above

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Lasagna Corporation has a defined benefit pension plan. Lasagna received the following information for the current calendar year:  Projected benefit obligation  Balance, January 1 $100,000,000 Service cost 18,000,00 Interest cost 10,000,000 Benefits paid (8,000,000) Balance, December 31$120,000,000 Plan assets  Balance, January 1 $70,000,000 Actual return on plan assets 7,000,000 Contribution 16,000,000 Benefits paid (8,000,000) Balance, December 31$85,000,000\begin{array} { | l | r | } \hline \text { Projected benefit obligation } & \\\hline \text { Balance, January 1 } & \$ 100,000,000 \\\hline \text { Service cost } & 18,000,00 \\\hline \text { Interest cost } & 10,000,000 \\\hline \text { Benefits paid } & ( 8,000,000 ) \\\hline \text { Balance, December } 31 & \$ 120,000,000 \\\hline \text { Plan assets } &\\\hline \text { Balance, January 1 } & \$ 70,000,000 \\\hline \text { Actual return on plan assets } &7 , 0 0 0 , 0 0 0 \\\hline \text { Contribution } & 1 6 , 0 0 0 , 0 0 0 \\\hline \text { Benefits paid } & ( 8 , 0 0 0 , 0 0 0 ) \\\hline \text { Balance, December } 31 & \$ 85,000,000 \\\hline\end{array} The expected long-term return on plan assets is 10%. There were no other relevant data for the year. Required: 1) Determine Lasagna Corporation's pension expense for the year. 2) Prepare the journal entries to record the pension expense and funding for the year.

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The net pension liability (PBO minus plan assets) is increased by:


A) Service cost.
B) Expected return on plan assets.
C) Amortization of prior service cost.
D) Cash contributions to plan assets.

E) B) and C)
F) C) and D)

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Conceptually, the service method provides a better matching of costs and benefits in amortizing prior service cost than does the straight-line method.

A) True
B) False

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