Connect

Close
Skip to eBook contentSkip to Chapter linksSkip to Content links for this ChapterSkip to eBook links

Chapter17: Pensions and Other Postretirement Benefits

CPA and CMA Review Questions

CPA Exam Questions

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/820130/kaplan.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (15.0K)</a>

The following questions are used in the Kaplan CPA Review Course to study pensions and other postretirement benefits while preparing for the CPA examination. Determine the response that best completes the statements or questions.

1.

  

Wolf Inc. began a defined benefit pension plan for its employees on January 1, 2011. The following data are provided for 2011 as of December 31, 2011:

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/818573/cpa_b.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (0.0K)</a> LO5

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/9891.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>

What amount should Wolf report as a net pension liability at December 31, 2011?

a.

  

$ 0

b.

  

$ 45,000

c.

  

$ 85,000

d.

  

$130,000

2.

  

A statement of comprehensive income for a company with a defined benefit pension plan does not include

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/818573/cpa_b.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (0.0K)</a> LO7

a.

  

net income.

b.

  

the return on plan assets.

c.

  

gains from the return on assets exceeding expectations.

d.

  

losses from changes in estimates regarding the pension obligation.

3.

  

JWS Corporation has a defined benefit pension plan. JWS reported a net pension liability in last year's balance sheet. This year, the company revised its estimate of future salary levels causing its projected benefit obligation estimate to decline by $8. Also, the $16 million actual return on plan assets was less than the $18 million expected return. As a result

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/818573/cpa_b.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (0.0K)</a> LO8

a.

  

the net pension liability will decrease by $8 million.

b.

  

the statement of comprehensive income will report a $2 million gain and an $8 million loss.

c.

  

the net pension liability will increase by $6 million.

d.

  

accumulated other comprehensive income will increase by $6 million.

p. 990

4.

  

Amortizing a net gain for pensions and other postretirement benefit plans will

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/818573/cpa_b.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (0.0K)</a> LO8

a.

  

decrease retained earnings and decrease accumulated other comprehensive income.

b.

  

increase retained earnings and increase accumulated other comprehensive income.

c.

  

decrease retained earnings and increase accumulated other comprehensive income.

d.

  

increase retained earnings and decrease accumulated other comprehensive income.

5.

  

At December 31, 2010, Johnston and Johnston reported in its balance sheet as part of accumulated other comprehensive income a net loss of $37 million related to its postretirement benefit plan. The actuary for J&J increased her estimate of J&J's future health care costs at the end of 2011. J&J's entry to record the effect of this change will include

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/818573/cpa_b.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (0.0K)</a> LO11

a.

  

a debit to other comprehensive income and a credit to postretirement benefit liability.

b.

  

a debit to postretirement benefit liability and a credit to other comprehensive income.

c.

  

a debit to pension expense and a credit to postretirement benefit liability.

d.

  

a debit to pension expense and a credit to other comprehensive income.

CMA Exam Questions

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/818573/ima.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a>

The following questions dealing with pensions and other postretirement benefits are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the Institute of Management Accountants (www.imanet.org) provides members with an objective measure of knowledge and competence in the field of management accounting. Determine the response that best completes the statements or questions.

1.

  

The projected benefit obligation (PBO) is best described as the

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/818573/cpa_b.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (0.0K)</a> LO3

a.

  

Present value of benefits accrued to date based on future salary levels.

b.

  

Present value of benefits accrued to date based on current salary levels.

c.

  

Increase in retroactive benefits at the date of the amendment of the plan.

d.

  

Amount of the adjustment necessary to reflect the difference between actual and estimated actuarial returns.

2.

  

On November 30, the Board of Directors of Baldwin Corporation amended its pension plan giving retroactive benefits to its employees. The information below is provided at November 30.

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/818573/cpa_b.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (0.0K)</a> LO6

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/premium/0077328787/student/9892.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>

Using the straight-line method of amortization, the amount of prior service cost charged to expense during the year ended November 30 is

a.

  

$9,500

b.

  

$19,000

c.

  

$30,250

d.

  

$190,000

2011 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Notice.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.