QUESTIONS
1. What is a private pension plan? How does a contributory pension plan differ from a noncontributory plan?
2. Differentiate between a defined contribution pension plan and a defined benefit pension plan. Explain how the employer’s obligation differs between the two types of plans.
3. Differentiate between “accounting for the employer” and “accounting for the pension fund.”
4. The meaning of the term “fund” depends on the context in which it is used. Explain its meaning when used as a noun. Explain its meaning when it is used as a verb.
5. What is the role of an actuary relative to pension plans? What are actuarial assumptions?
6. What factors must be considered by the actuary in measuring the amount of pension benefits under a defined benefit plan?
7. Name three approaches to measuring benefit obligations from a pension plan and explain how they differ.
8. Explain how cash-basis accounting for pension plans differs from accrual-basis accounting for pension plans.
Why is cash-basis accounting generally considered unacceptable for pension plan accounting?
9. Identify the five components that comprise pension expense. Briefly explain the nature of each component.
10. What is service cost, and what is the basis of its measurement?
11. In computing the interest component of pension expense, what interest rates may be used?
12. Explain the difference between service cost and prior service cost.
13. What is meant by “prior service cost”? When is prior service cost recognized as pension expense?
14. What are “liability gains and losses,” and how are they accounted for?
15. If pension expense recognized in a period exceeds the current amount funded by the employer, what kind of account arises, and how should it be reported in the financial statements? If the reverse occurs—that is, current funding by the employer exceeds the amount recognized as pension expense—what kind of account arises, and how should it be reported?
16. Given the following items and amounts, compute the actual return on plan assets: fair value of plan assets at the beginning of the period $9,500,000; benefits paid during the period $1,400,000; contributions made during the period $1,000,000; and fair value of the plan assets at the end of the period $10,150,000.
17. How does an “asset gain or loss” develop in pension accounting? How does a “liability gain or loss” develop in pension accounting?
18. What is the meaning of “corridor amortization”?
19. At the end of the current period, Agler Inc. had a projected benefit obligation of $400,000 and pension plan assets (at fair value) of $350,000. What are the accounts and amounts that will be reported on the company’s balance sheet as pension assets or pension liabilities?
20. At the end of the current year, Pociek Co. has prior service cost of $9,150,000. Where should the prior service cost be reported on the balance sheet?
21. Describe the accounting for actuarial gains and losses.
22. Boey Company reported net income of $25,000 in 2018. It had the following amounts related to its pension plan in 2018: Actuarial liability gain $10,000; Unexpected asset loss $14,000; Accumulated other comprehensive income (G/L) (beginning balance), zero. Determine for 2018 (a) Boey’s other comprehensive income, and (b) comprehensive income.
23. Describe the reporting of pension plans for a company with multiple plans, some of which are underfunded and some of which are overfunded.
24. Determine the meaning of the following terms.
(a) Contributory plan.
(b) Vested benefits.
(c) Retroactive benefits.
(d) Years-of-service method.
25. A headline in the Wall Street Journal stated, “Firms Increasingly Tap Their Pension Funds to Use Excess Assets.” What is the accounting issue related to the use of these “excess assets” through plan terminations?
26. What are postretirement benefits other than pensions?
27. Why didn’t the FASB cover both types of postretirement benefits—pensions and healthcare—in the earlier pension accounting rules?
28. What are the major differences between postretirement healthcare benefits and pension benefits?
29. What is the difference between the APBO and the
EPBO? What are the components of postretirement expense?
