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DQ Retirement Benefits

The document consists of a series of multiple-choice questions related to defined contribution and defined benefit pension plans. It covers various aspects such as characteristics, recognition, measurement, and funding processes of these plans. The questions aim to assess understanding of the accounting and financial implications associated with pension plans.

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34 views4 pages

DQ Retirement Benefits

The document consists of a series of multiple-choice questions related to defined contribution and defined benefit pension plans. It covers various aspects such as characteristics, recognition, measurement, and funding processes of these plans. The questions aim to assess understanding of the accounting and financial implications associated with pension plans.

Uploaded by

23-0428c
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Instruction: Select the best answer from the choices provided.

Source: Various test banks

1. Which statement characterizes defined contribution plan?


a. Defined contribution plans are more complex than defined benefit plans.
b. The employer's obligation is satisfied by making the appropriate amount of periodic contribution.
c. The investment risk is borne by the employer.
d. Contributions are made in equal amounts by employer and employees.

2. Which is not a characteristic of defined contribution plan?


a. The employer contribution each period is based on a formula.
b. The benefits to be received are usually determined by an employee's highest salary.
c. The accounting for a defined contribution plan is straightforward and uncomplicated.
d. The benefit of gain or the risk of loss from the assets contributed to the plan is borne by the employee.

3. Which statement is true concerning the recognition and measurement of a defined contribution plan?
a. The contribution shall be recognized as expense in the period it is payable.
b. Any unpaid contribution at the end of the period shall be recognized as accrued liability.
c. Any excess contribution shall be recognized as prepaid expense but only to the extent that the prepayment will lead to
a reduction in future payments or a cash refund.
d. All of these statements are true about a defined contribution plan.

4. Which statement is incorrect concerning the recognition and measurement of a defined benefit plan?
a. Actuarial assumptions are required to measure the obligation and expense and there is a possibility of actuarial gains
and losses.
b. The obligation is measured on a discounted basis.
c. The defined benefit plan must be fully funded.
d. The expense recognized for a defined benefit plan is not necessarily the amount of contribution due for the period.

5. In a defined benefit plan, the process of funding refers to


a. Determining the defined benefit obligation.
b. Determining the accumulated benefit obligation.
c. Making the periodic contributions to a funding agency to ensure that funds are available to meet claims.
d. Determining the amount reported for pension expense.
6. In accounting for a defined benefit plan
a. An appropriate funding must be established to ensure that enough fund would be available at retirement.
b. The employer responsibility is simply to make a contribution each year.
c. The expense recognized each period is equal to the cash contribution to the plan.
d. The liability is determined based upon variables that reflect current salary levels.

7. The formula in a defined benefit plan


a. Requires that the benefit of gain or the risk of loss from the assets contributed borne by the employee. to the plan
should be
b. Defines the benefits that the employee will receive at the time of retirement.
c. Requires that the defined benefit cost and funding must the same.
d. Defines the contribution to be made by the employer and no promise is made concerning the ultimate benefits to be
paid out to the employees.

8. In rare circumstances, when a retirement benefit plan has attributes of both defined contribution and defined benefit plan,
the plan is deemed
a. Defined benefit plan
b. Defined contribution plan
c. Neither defined benefit nor defined contribution plan
d. Both defined benefit and defined contribution plan

9. The defined benefit cost includes all, except


a. Service cost
b. Net interest
c. Remeasurements
d. Contribution to the plan

10. The service cost comprises all, except


a. Current service cost
b. Past service cost
c. Gain or loss on plan settlement
d. Net interest

11. Which of the following components of defined benefit cost shall be recognized through other comprehensive income?
a. Current service cost
b. Past service cost
c. Net interest
d. Remeasurements

12. Remeasurements of defined benefit plan include


a. The difference between actual return and interest income on plan assets.
b. Actuarial gain or loss on projected benefit obligation.
c. Change in the effect of asset ceiling minus interest expense on the beginning effect of asset ceiling.
d. All of these are included in remeasurements of defined benefit plan.

13. When an entity amends a pension plan, past service cost should be
a. Treated as a prior period adjustment.
b. Amortized over the remaining service period.
c. Recorded in other comprehensive income.
d. Reported as an expense in the period the plan is amended.
14. What is net interest in relation to a defined benefit cost?
a. Interest expense on projected benefit obligation
b. Interest income on the fair value of plan assets
c. The difference between interest expense on projected benefit obligation, interest expense on effect of asset plan
assets ceiling and interest income on plan assets
d. Interest expense on benefit obligation less tax

15. Which of the following should be included in plan assets?


a. Assets held by a long-term employee benefit fund
b. Qualifying insurance policy
c. Both assets held by a long-term employee benefit fund and qualifying insurance policy
d. Neither assets held by a long-term employee benefit fund nor qualifying insurance policy

16. The return on plan assets


a. Is equal to the fair value of the plan assets.
b. Includes interest, dividends and change in the fair value of the plan assets during the year
c. Is equal to the discount rate times fair value of assets.
d. Is equal to expected rate of return times the fair value of plan assets at the beginning of the period.

17. Plan assets must satisfy all conditions, except


a. The assets are held by an entity, the fund itself, that is legally separate from the reporting entity.
b. The assets are available to pay only employee benefits.
c. The assets are not available to the creditors.
d. The assets can be returned to the entity even if the assets are insufficient to meet benefit obligations.

18. A pension liability is reported when


a. The projected benefit obligation exceeds the fair value of plan assets.
b. The accumulated benefit obligation is less than the fair value of plan assets.
c. The pension expense is greater funding.
d. Other comprehensive income exceeds fair value.

19. A pension asset is reported when


a. The accumulated benefit obligation exceeds the fair value of plan assets.
b. The accumulated benefit obligation exceeds the fair value of plan assets but a past service cost exists.
c. Plan assets at fair value exceed the accumulated benefit obligation.
d. Plan assets at fair value exceed the projected benefit obligation.

20. Which measure requires the use of future salaries in the computation of benefit obligation?
a. Vested benefit obligation
b. Accumulated benefit obligation
c. Projected benefit obligation
d. Current benefit obligation

21. What is the discount rate for pension plans?


a. The market yield at the end of the reporting period for high quality corporate bonds
b. The expected rate of return on plan assets
c. The weighted average interest rate
d. The bank prime interest rate

22. The interest on the projected benefit obligation


a. Reflects the incremental borrowing rate.
b. Reflects the rate at which retirement benefits could be effectively settled.
c. Is the same as the actual return on plan assets.
d. May be stated implicitly.
23. Interest cost in the pension cost represents
a. Shortage between the expected and actual return.
b. Change in the nature of benefits.
c. Increase in the PBO due to passage of time.
d. Increase the FVPA due to the passage of time.

24. What is the relationship between the amount funded and the amount reported for defined benefit cost?
a. Defined benefit cost must equal the amount funded.
b. Defined benefit cost is less than the amount funded.
c. Defined benefit cost is more than the amount funded.
d. Defined benefit cost may be more than, equal to, or less than the amount funded.

25. The projected benefit obligation


a. Is required for reporting the current service cost.
b. Requires pension expense based on existing salary.
c. Requires the longest possible period for funding to maximize the tax deduction.
d. Is not sanctioned under IFRS.

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