Question

1. If Dobbs, Inc. debits Pension Expense and credits a noncurrent liability to recognize its annual pension expense, the type of pension plan it has is:

A. A defined benefit plan only.

B. A defined contribution plan only.

C. Both a defined benefit and a defined contribution pension plan.

D. The entry described above is incorrect.

2. Companies that have a defined benefit pension plan must consider several factors each year to calculate the amount of the PBO for financial reporting purposes. Which of the following is not one of those factors?

A. Employee turnover.

B. The number of employees who retired last year.

C. Future inflation rates.

D. Future compensation levels.

3. Lou Company is trying to calculate the amount of their PBO for the current year. What type of professional should they hire to assist them in this calculation?

A. A CPA.

B. An investment banker.

C. An actuary.

D. An attorney.

4. What part of total pension expense is reported as a part of operating income?

A. Interest expense.

B. Actual return on plan assets.

C. Service cost.

D. Expected return on plan assets.

5. Pension expense is decreased by:

A. Amortization of prior service cost.

B. Amortization of net gain.

C. Benefits paid to retired employees.

D. Prior service cost.

Answer 1

Answer:-

1) A) A Defined Benefit Plan Only

In the Defined Benefit Plan Employer have to make payment for the pension on the retirement of employee regardless the performance of Investment. The employer make provisions for the Pension year by year and at the end of the term of employment employer paid the specific amount to that employee as per calculation. In the given case expenses is debited by creating a long term liabilities hence this is Defined Benifit Plan.

2) A) Employee turnover

In the Defined Benefit Plan Employer have to make payment for the pension on the retirement of employee regardless the performance of Investment hence employee turnover is not one of the factor that should be considered while calculating pension amount.

3) C) An Actuary

An Actuary is well known professional for calculation Projected Benefit Obligation at the time of Retirement.

4) C) Service cost

The Service Cost is primary component of Pension Expenses. Thus it is recognized by employer in Income Statement.