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TitleChapter 20 - Test Bank
TagsPension Fair Value Defined Benefit Pension Plan Expense Retirement
File Size168.3 KB
Total Pages50
Document Text Contents
Page 25

Accounting for Pensions and Postretirement Benefits


104. Ohlman, Inc. maintains a defined-benefit pension plan for its employees. As of December
31, 2013, the market value of the plan assets is less than the accumulated benefit
obligation. The projected benefit obligation exceeds the accumulated benefit obligation. In
its balance sheet as of December 31, 2013, Ohlman should report a liability in the amount
of the
a. excess of the projected benefit obligation over the fair value of the plan assets.
b. excess of the accumulated benefit obligation over the fair value of the plan assets.
c. projected benefit obligation.
d. accumulated benefit obligation.

105. At December 31, 2013, the following information was provided by the Vargas Corp.

pension plan administrator:
Fair value of plan assets $4,500,000
Accumulated benefit obligation 5,580,000
Projected benefit obligation 7,700,000

What is the amount of the pension liability that should be shown on Vargas' December 31,
2013 balance sheet?
a. $7,700,000
b. $3,200,000
c. $2,120,000
d. $1,080,000

Multiple Choice Answers—CPA Adapted

Item Ans. Item Ans. Item Ans.

100. d 102. c 104. a
101. b 103. d 105. b

DERIVATIONS — Computational
No. Answer Derivation
64. d $92,000 + $54,000 + $12,000 – $18,000 = $140,000.

65. c $250,000 + ($2,400,000 × .10) – ($1,600,000 × .10) = $330,000.

66. a $1,100,000 + $390,000 + $90,000 + $165,000 – $180,000 = $1,565,000.

67. b $390,000 + $60,000 + ($4,800,000 × .10) – ($4,200,000 × .09) = $552,000.

68. a $200,000 + $120,000 - $167,900 = $152,100.

69. a $400,000 - $200,000 = $200,000.

70. b ($167,900 - $40,000) ÷ 10 = $12,790.

71. d $900,000 + $362,500 – $230,000 – $82,500 + $150,000 = $1,100,000.

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Page 50

Test Bank for Intermediate Accounting, Fourteenth Edition


Answers to Multiple Choice:
1. c
2. b
3. a
4. d
5. a
6. c
7. a
8. d
9. d
10. c

Short Answer

1. Briefly describe some of the similarities and differences between U.S. GAAP and IFRS with
respect to the accounting for pensions.

1. The primary IFRS literature has recently been amended, resulting in significant
convergence between IFRS and U.S. GAAP in this area. For example, IFRS and U.S.
GAAP separate pension plans into defined contribution plans and defined benefit plans.
The accounting for defined contribution plans is similar. For defined benefit plans, both
IFRS and U.S. GAAP recognize the net of the pension assets and liabilities on the
balance sheet and both GAAPs amortize prior service costs into income over the
expected service lives of employees.

Notable differences are that (1) Unlike U.S. GAAP, which recognizes prior service cost on
the balance sheet (as an element of Accumulated Other Comprehensive Income), IFRS
does not recognize prior service costs on the balance sheet, (2) Under IFRS companies
have the choice of recognizing actuarial gains and losses in income immediately or
amortizing them over the expected remaining working lives of employees. U.S. GAAP
does not permit choice; actuarial gains and losses (and prior service cost) are recognized
in Accumulated Other Comprehensive Income and amortized to income over remaining
service lives.

2. Briefly discuss the IASB/FASB convergence efforts in the area of postretirement-benefit

2. The FASB and the IASB are working collaboratively on a postretirement-benefit project.

As discussed in the chapter, the FASB has issued a rule addressing the recognition of
benefit plans in financial statements. The FASB has begun work on the second phase of
the project, which will reexamine expense measurement of postretirement benefit plans.
The IASB also has added a project in this area but they are on different schedule. The
IASB has recently issued a discussion paper on pensions proposing: (1) elimination of
smoothing via the corridor approach, (2) a different presentation of pension costs in the
income statement, and (3) a new category of pensions for accounting purposes - so-called
“contribution-based promises”.

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