Reading 23: Employee Compensation: Post-Retirement and Sha

black, latest, benefit, statements, class

Q1. Mountain View Inc.’s latest financial statements show the projected benefit obligation (PBO) of their pension plan to be $250

million, while the fair market value of the plan assets is $210 million. The company’s balance sheet reflects a net pension

liability of $25 million. In light of this information, which of the following actions is Mountain View required to take in accordance

with current U.S. accounting standards? Ignoring income taxes, the company is required to:

A) record a $40 million “additional pension liability” on its balance sheet.

B) record a $15 million “additional pension liability” on its balance sheet.

C) disclose a $15 million “additional pension liability” in the footnotes to its financial statements.

Q2. When analyzing the disclosures made with regards to pension plan accounting released by a company, which of the following

measures most accurately reflects the true economic position of the plan?

A) The accumulated benefit obligation (ABO).

B) The fair value of plan assets.

C) The funded status of the plan.

Q3. Darla Whitney, CFA, is an investment advisor for a small money management firm in New York. She is considering the

purchase of shares in Best Corp., a German company. Whitney is aware that there are differences in the accounting treatment

of pension benefits for U.S. companies under GAAP and those companies operating under the International Financial

Reporting Standards (IFRS). Which of the following statements most accurately describes the most significant difference

between the GAAP and the IFRS rules for the accounting for pension plans?

A) GAAP recognizes the funded status on the balance sheet, while IFRS reflects the funded status adjusted for unrecognized items.

B) GAAP requires that actuarial gains and losses be amortized over the employee’s service life, while IFRS requires that they be amortized over a period not to exceed 15 years.

C) GAAP requires that prior service costs for currently vested employees be expensed in the period incurred, while IFRS requires them to be deferred and amortized.

Q4. Which of the following measures is least sensitive to changes in pension plan actuarial assumptions?

A) Reported pension expense.

B) Projected benefit obligation (PBO).

C) Funded status.