Deck 17: Employee Compensation-Payroll, pensions, Other Compissues

Question 1

What is measured by the accumulated benefit obligation?

A) The pension expense,computed by the plan formula applied to years of service to date,assuming future salary levels
B) The pension expense,computed by the plan formula applied to years of service to date,using existing salary levels
C) The pension obligation,computed by the plan formula applied to years of service to date,assuming future salary levels
D) The pension obligation,computed by the plan formula applied to years of service to date,using existing salary levels

Answer 1

D

Question 2

Each full-time employee of Hydroponics Greenhouse is entitled to ten paid sick days each year.The sick pay is not vested,but any unused sick days can be carried over to subsequent years.Under FASB ASC Topic 710,Hydroponics Greenhouse should

A) recognize sick pay as an expense when actually paid.
B) recognize an estimated current liability for unused sick pay at the end of each period.
C) recognize an estimated noncurrent liability for unused sick pay at the end of each period.
D) accrue or not accrue sick pay based on historical rates of absenteeism.

Answer 2

A

Question 3

Which of the following is not an issue in accounting for defined benefit plans?

A) The amount of pension expense to be recognized
B) The amount of pension liability to be reported
C) The amount of funding (contributions)required by the plan
D) Disclosures needed to supplement the financial statements

Answer 3

C

Question 4

During the first week of February,Gabe Hopen earned $300.Assume that FICA taxes are 7.65 percent of wages up to $106,800,state unemployment tax is 5.0 percent of wages up to $13,000,and federal unemployment tax is 0.8 percent of wages up to $13,000.Assume that Gabe has voluntary withholdings of $10 (in addition to taxes)and that federal and state income tax withholdings are $18 and $6,respectively.
Using the information above,what is the employer's payroll tax expense for the week,assuming that Gabe Hopen is the only employee?

A) $24.00
B) $40.35
C) $28.00
D) $17.40

Question 5

Which of the following statements characterizes defined contribution plans?

A) They are more complex in construction 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.

Question 6

Which of the following criteria is not required for the recognition of a liability for compensated absences under FASB ASC Topic 710?

A) The amount of the obligation must be estimable.
B) Payment of the obligation must be probable.
C) Payment of the obligation will require the use of current assets.
D) The compensation either vests with the employee or can be carried forward to subsequent years.

Question 7

The vested benefits of an employee in a pension plan represent benefits

A) to be paid to the retired employee in the current year.
B) to be paid to the retired employee in subsequent years.
C) to be paid from funds currently in the hands of an independent trustee.
D) that are not contingent on the employee's continuing in the service of the employer.

Question 8

The FASB's conclusion relating to the computation of the service cost component of pension expense is that the projected benefit obligation computed using

A) future salary levels provides a reasonable measure of future pension obligation and expense.
B) future salary levels provides a reasonable measure of present pension obligation and expense.
C) present salary levels provides a reasonable measure of future pension obligation and expense.
D) present salary levels provides a reasonable measure of present pension obligation and expense.

Question 9

FASB ASC Topic 715 states that prior service cost should be

A) offset against current service cost.
B) recognized in the period of plan adoption or amendment.
C) amortized over the expected service period.
D) recorded as a prior period adjustment.

Question 10

Which of the following taxes is NOT included in the payroll tax expense of the employer?

A) State unemployment taxes
B) Federal income taxes
C) FICA taxes
D) Federal unemployment taxes

Question 11

Which of the following taxes must be paid by both the employee and the employer?

A) Social security tax (FICA)
B) State unemployment tax
C) State withholding tax
D) Federal unemployment tax

Question 12

FASB ASC Topic 715 requires that the notes accompanying the financial statements include a schedule reconciling the

A) funded status of the plan with amounts reported in the balance sheet.
B) current period employer contributions with pension expense reported in the income statement.
C) projected benefit obligation and the accumulated benefit obligation.
D) actual return on plan assets with the expected return.

Question 13

If the actual return on pension fund assets exceeds the expected return for the period,the difference is

A) a deferred loss.
B) a deferred gain.
C) recognized as a loss in the current period.
D) recognized as a gain in the current period.

Question 14

Which of the following is not a component of net periodic pension cost?

A) Interest cost
B) Actual return on plan assets
C) Benefits paid to retirees
D) Amortization of prior service cost

Question 15

Which of the following statements characterizes defined benefit plans?

A) They are comparatively simple in construction and raise few accounting issues for employers.
B) Retirement benefits depend on how well pension fund assets have been managed.
C) Retirement benefits are based on the plan's benefit formula.
D) All of these.

Question 16

Which of the following payroll taxes are paid by the employer?

A) FICA taxes
B) Federal unemployment taxes
C) State unemployment taxes
D) All of these

Question 17

Which of the following accounting principles best describes the rationale for reporting a liability for earned but unused compensated absences?

A) Historical cost
B) Full disclosure
C) Materiality
D) Matching

Question 18

The projected benefit obligation is the measure of pension obligation that

A) is the only allowable estimate for reporting the service cost component of pension expense.
B) is not an allowable estimate for reporting the service cost component of pension expense for defined benefit plans.
C) is one of several allowable estimates for reporting the service cost component of pension expense.
D) can no longer be used under GAAP as an estimate for reporting the service cost component of pension expense

Question 19

Laid Back Corp.follows the practice of paying all employees for vacation.The vacation pay is not vested,but it carries over for one year if unused.Under GAAP,the obligation for earned but unused vacation should be

A) accrued as a current liability.
B) disclosed as a contingent liability.
C) ignored until incurred.
D) accrued or not accrued according to the judgment of management.

Question 20

During the first week of February,Gabe Hopen earned $300.Assume that FICA taxes are 7.65 percent of wages up to $106,800,state unemployment tax is 5.0 percent of wages up to $13,000,and federal unemployment tax is 0.8 percent of wages up to $13,000.Assume that Gabe has voluntary withholdings of $10 (in addition to taxes)and that federal and state income tax withholdings are $18 and $6,respectively.
Using the information above,what amount is the check,net of all deductions,that Gabe received for the week's pay?

A) $243.05
B) $259.60
C) $274.60
D) $277.00

Question 21

Which of the following is NOT correct?

A) International accounting standards for pensions (IAS 19)do not include any provisions for the recognition of an additional minimum liability.
B) International accounting standards for pensions (IAS 19)do not allow for the recognition of a net pension asset in some circumstances.
C) International accounting standard for pensions (IAS 19)include the same 10% corridor amount in calculating the amortization of deferred gains and losses as found in U.S.GAAP.
D) International accounting standards for pensions (IAS 19)recognized pension gains and losses immediately as part of comprehensive income.

Question 22

Redman Corporation is a publicly held company that supplies tourniquets to medical emergency centers.The company maintains a noncontributory defined benefit pension plan for its employees.The Redman's actuary has provided the following information for the year ended December 31,2014: Prior contributions to the defined benefit pension plan equaled the amount of net periodic pension cost accrued for the previous year end.If no contributions have been made for 2014 pension cost,what amount should Redman report in its December 31,2014,balance sheet for accrued pension cost?

A) $218,000
B) $242,000
C) $324,000
D) $406,000

Question 23

On January 1,2014,Reason Co.estimated a projected benefit of $440,000 based on a settlement rate of 12 percent.Pension benefits paid to retirees totaled $60,000.Service costs for 2014 amounted to $148,000.The fair value of the plan assets were $350,000 and $400,000 on December 31,2013,and December 31,2014,respectively.The projected benefit obligation at December 31,2014,was

A) $528,000.
B) $580,800.
C) $630,800.
D) $640,800.

Question 24

The following information relates to the defined benefit pension plan of the Summersville Company for the year ending December 31,2014: The net amount of the gain or loss component to be included in pension cost for 2014 would be

A) $8,500
B) $32,500.
C) $47,500.
D) $77,500.

Question 25

Gordon Inc.has a defined benefit plan for its employees.The following information relates to this plan: There was no unrecognized prior service cost or unrecognized gains or losses.Gordon's net periodic pension cost for the year was

A) $968,000.
B) $940,000.
C) $900,000.
D) $880,000.

Question 26

Vinny,Inc.has an incentive compensation plan under which the sales manager receives a bonus equal to 10 percent of the company's income after deductions for bonus and income taxes.Income before bonus and income taxes is $400,000.The effective income tax rate is 30 percent.How much is the bonus (rounded to the nearest dollar)?

A) $40,000
B) $30,108
C) $28,000
D) $26,168

Question 27

Which of the following statements is correct?

A) Minimum (corridor)amortization of net unrecognized gain or loss is not allowed for postretirement benefit plans.
B) Immediate recognition of gains and losses is allowed for postretirement benefit plans but not for pension plans.
C) Immediate recognition of gains and losses is allowed for pension plans but not for postretirement benefit plans.
D) Minimum (corridor)amortization of net unrecognized gain or loss is the only amortization method allowed for postretirement benefit plans.

Question 28

International accounting standards for pensions currently in effect

A) allow only the accrued benefit method.
B) allow both the accrued benefit and projected benefit methods.
C) allow only the projected benefit method.
D) do not allow either the accrued benefit or projected benefit methods.

Question 29

Pandora Company determined that it has an obligation relating to employees' rights to receive compensation for future absences attributable to employees services already rendered.The obligation relates to rights that vest,and payment of the compensation is probable.The amounts of Pandora's obligations as of December 31 are reasonably estimated as follows: In its December 31 balance sheet,what amount should Pandora report as its liability for compensated absences?

A) $190,000
B) $110,000
C) $80,000
D) $0

Question 30

Which of the following concepts for postretirement benefit plans is comparable to the projected benefit obligation (PBO)of pension plans?

A) Accumulated Postretirement Benefit Obligation (APBO)
B) Expected Postretirement Benefit Obligation (EPBO)
C) Actual return on plan assets
D) Expected return on plan assets

Question 31

Lincoln Corporation provides an incentive compensation plan under which its president is to receive a bonus equal to 15 percent of Lincoln's income in excess of $150,000 before deducting income tax but after deducting bonus.If income before income tax and bonus is $320,000 and the effective tax rate is 40 percent,the amount of the bonus should be

A) $22,174
B) $24,174
C) $34,000
D) $46,000

Question 32

On January 1,2014,Bongle Co.amended its defined benefit plan resulting in an increase in the projected benefit obligation of $700,000.As of the date of the amendment,Bongle Co.had 100 employees.Ten employees are expected to leave at the end of each of the next ten years.The minimum amount of amortization for prior service cost in 2015 (the second year)is

A) $140,000.
B) $127,273.
C) $114,545.
D) $101,818.

Question 33

The following information relates to Aracely Inc.at December 31,2014: The total pension liability at December 31,2014,for Aracely Inc.is

A) $0.
B) $440,000.
C) $480,000.
D) $520,000.

Question 34

On January 1,2014,Reds Corporation adopted a defined benefit pension plan.The plan's service cost of $140,000 was fully funded at the end of 2014.Prior service cost was funded by a contribution of $50,000 in 2014.Amortization of prior service cost was $14,000 for 2014.What is the amount of Reds' prepaid pension cost at December 31,2014?

A) $36,000
B) $60,000
C) $84,000
D) $90,000

Question 35

The interest cost component for other postretirement benefits is determined using

A) the settlement rate of interest.
B) the rate of return on high quality fixed-income investments with cash flows matching the timing and amounts of expected benefit payments.
C) both of these.
D) neither of these.

Question 36

The following information relates to the defined benefit pension plan for the Moldor Company for the year ending December 31,2014.

Using the information above,service cost for the year would be

A) $390,000.
B) $129,000.
C) $94,000.
D) $59,000.

Question 37

Which of the following components should be included in the calculation of net pension cost recognized for a period by an employer sponsoring a defined benefit pension plan? Actual Return Amortization of
On Plan Assets, Unrecognized Prior Interest
If Any Service cost,If Any Cost

A) No No Yes
B) Yes No Yes
C) Yes Yes No
D) Yes Yes Yes

Question 38

Quinn Company has a defined benefit plan.The fair value of plan assets on January 1,2014,was $1,500,000.No unrecognized net loss or gain existed.On December 31,2014,the fair value of the plan assets was $1,860,000.Benefits paid to retirees equaled $300,000.Company contributions to the plan totaled $360,000.The settlement rate was 8 percent,and the expected long-term rate of return on plan assets was 10 percent.The actual return on plan assets was

A) $150,000.
B) $180,000.
C) $224,000.
D) $300,000.

Question 39

The following information relates to the defined benefit pension plan of the Steamer Company for the year ending December 31,2014: The net periodic pension cost reported in the income statement for 2014 would be

A) $11,500.
B) $24,000.
C) $36,500.
D) $59,000.

Question 40

The following information relates to the defined benefit pension plan for the Moldor Company for the year ending December 31,2014.

Using the information above,the actual return on plan assets for the year is

A) $105,000.
B) $495,000.
C) $503,500.
D) $530,000.

Question 41

Total pension expense recognized over the life of a pension plan will be

A) the same as the amount of the cash funding (including interest earned).
B) more than the amount of the cash funding (including interest earned).
C) less than the amount of the cash funding (including interest earned).
D) the amount contributed over the life of the plan less the total actual return on plan assets.

Question 42

Vast Ocean Corporation has an incentive compensation plan under which the sales manager receives a bonus equal to 10% of the company's income after deducting income taxes but before deducting the bonus.Income before income tax and the bonus is $80,000.The effective income tax rate is 40%.How much is the bonus?

A) $8,000
B) $5,000
C) $4,800
D) $4,320

Question 43

An enterprise provides for paid vacation periods for many of its employees.It is probable that these vacations will be taken,and there is a definite amount that accrues each year for each employee.Vacation benefits accrue in the amount of one paid vacation day per complete month of service,that is,an employee must work a complete month before receiving the benefits of another paid vacation day. Given the above information,which of the following statements is correct?

A) Given only the above information,vacation pay should be accrued monthly,as employees render service.
B) Only if the benefits vest should vacation pay be accrued before payment.
C) Only if the benefits accumulate should the vacation pay be accrued before payment.
D) If the benefits neither vest nor accumulate,then the vacation pay should be recognized as expense only when paid.

Question 44

Evasive Corporation pays its employees monthly.The following information is available for the January payroll:
All employees' salaries are subject to the tax rates mentioned above for Evasive Corporation.
Using the information above,Evasive's total expense related to the January payroll is

A) $95,120
B) $86,720
C) $88,680
D) $81,120

Question 45

Shutters Company adopted a defined benefit pension plan on January 1,2014.Shutters amortizes the prior service cost over 16 years and funds prior service cost by making equal payments to the fund trustee at the end of each of the first ten years.The service cost is fully funded at the end of each year.The following data are available for 2014: If interest cost for 2014 is equal to the return on plan assets,then Shutters's prepaid pension cost at December 31,2014,is

A) $228,800.
B) $166,800.
C) $62,000.
D) $0

Question 46

Winters,Inc. ,pays its managers a bonus consisting of 7% of net income (income after deduction of both bonus and income taxes).The company's income tax rate is 20%.Income for the current year is $600,000. How much bonus would be paid for the current year (rounded to whole dollars)?

A) $42,000
B) $33,600
C) $31,818
D) $31,248

Question 47

Valve Corporation has the following pension information for the year ended December 31,2014: Assuming the expected return on plan assets and the settlement rate are both 10 percent,what amount should Valve report for pension expense for 2014?

A) $225,000
B) $285,000
C) $315,000
D) $495,000

Question 48

Noser Inc.shows the following data relating to its pension plan for 2014: What amount should Noser report for pension expense in 2014?

A) $206,000
B) $238,000
C) $242,000
D) $270,000

Question 49

The components of net periodic pension expense that involve delayed recognition are

A) gains and losses,transition cost,and prior service cost.
B) service cost,transition cost,and gains and losses.
C) interest cost,prior service cost,transition cost,and expected return on plan assets.
D) transition cost,prior service cost,and expected return on plan assets.

Question 50

Paltry Corporation has a pension plan that has a provision that employees will receive benefits upon retirement even though the employees are not working for the company at the time of retirement.Such a plan is characterized as

A) defined benefit.
B) defined contribution.
C) noncontributory.
D) vested.

Question 51

Jenine Company sponsors a noncontributory,defined benefit pension plan.On December 31,2014,the end of the company's accounting period,the company received the projected benefit obligation report from the independent actuary.The following data were included: Based on this information,the January 1,2014,balance for the PBO and the service cost for the year ended December 31,2014,were
Beginning PBO 2014 Service Cost

A) $150,000 $81,000
B) $150,000 $67,500
C) $216,000 $67,500
D) $163,500 $54,000

Question 52

Which of the following represents the best description of the projected benefit obligation at any balance sheet date?

A) Service cost to date + interest cost to date + unrecognized gain or loss at the balance sheet date
B) Service cost to date + prior service cost to date + unrecognized gain or loss at the balance sheet date
C) Service cost to date + interest cost to date - amortized prior service cost - actual return - benefits paid to date
D) Service cost to date + interest cost + net total actuarial gain or loss + prior service cost to date - benefits paid to date

Question 53

Pension-related estimates (not funding data)are provided by the

A) employer company.
B) independent actuary.
C) pension fund trustees.
D) employee union.

Question 54

Unrecognized prior service cost can be amortized based on which of the following methods?

A) Straight-line method using any systematic rational approach
B) Straight-line method based on the average remaining service period of the qualified employees
C) Interest method using the actuary's discount rate
D) Service method based on the average remaining service period of the qualified employees

Question 55

Which of the following is not a required note disclosure related to pension plans under FASB ASC Topic 715?

A) Fair value of plan assets
B) Actuarial discount rate
C) Projected benefit obligation
D) Number of employees covered by the plan

Question 56

One component of net pension expense,unrecognized gains and losses,comes from which of the following sources?

A) Difference between expected and actual prior service and transition costs only
B) Difference between expected and actual return on plan assets only
C) Projected benefit obligation changes due to changes in pension assumptions only
D) Projected benefit obligation changes due to changes in pension assumptions only,and the difference between expected and actual return on plan assets

Question 57

Records for the Bass Corporation's defined-benefit pension plan show a net unrecognized loss at December 31,2013,of $30,000,after recording the pension expense for 2013.The average expected service period of the company's employees is 10 years.The actuary notifies Bass's management that an actuarial gain of $4,000 is determined at January 1,2014.Actual return for 2014 is $2,000,and expected return is $3,000.The following information also is available for the 2014: The minimum amortization of unrecognized loss increases 2014 pension expense by what amount?

A) $2,400
B) $1,700
C) $2,100
D) $2,600

Question 58

Which of the following is not a post-employment benefit,according to FASB ASC Topic 712,"Employers' Accounting for Postemployment Benefits"?

A) Salary continuation after severance
B) Health insurance paid for a three-month period following a layoff
C) Life insurance coverage paid for retirees
D) Job training for laid-off workers

Question 59

Evasive Corporation pays its employees monthly.The following information is available for the January payroll:
All employees' salaries are subject to the tax rates mentioned above for Evasive Corporation.
Using the information above,what was Evasive's liability relative to the January payroll after the employees received and cashed their payroll checks?

A) $28,800
B) $23,760
C) $21,600
D) $21,200

Question 60

Mint Company sponsors a noncontributory,defined-benefit pension plan.At December 31,2014,the end of the company's fiscal year,the actuary's report showed pension benefits paid of $15,000,and PBO balance of $300,000.The trustee's report showed a beginning plan assets balance (at fair value)of $240,000,contributions for the year of $36,000,and an actual return on plan assets of 10 percent (the expected return was 9 percent). The underfunded PBO at the end of 2014 was

A) $0.
B) $15,000.
C) $24,000.
D) $30,000.

Question 61

Based on the following data,determine the net periodic pension cost:

Question 62

Feinberg,Inc. ,provides a noncontributory defined benefit plan for its 200 employees.Information from the company's pension footnote for the year ended December 31,2013,and partial information for the year ended December 31,2014,are given below:
The company's actuary indicated that the settlement rate and expected rate of return on plan assets were both 8% for 2013 and 2014.The company contributed $221,250 to the plan at the end of 2014.Service cost for 2014 was $125,000.
On January 1,2013,the company amended its plan to grant retroactive credit for prior service rendered by employees prior to the amendment.This amendment increased unrecognized prior service cost by $125,000 at that date.The prior service cost is being amortized over the average remaining service life of the employees affected by the amendment.The average remaining service life of the workforce in each year has been constant at 10.5 years.

Question 63

The following data relate to the defined benefit pension plan of the Brotherhood Corp.for the years 2013-2015:
At December 31,2012,the books of Youngblood Corp.reflected a pension liability of $30,000.The fair value of pension fund assets at that date was $1,300,000.The pension fund is administered by an independent trustee.

Question 64

The amount of the expected return on plan assets is computed by multiplying the

A) beginning market-related value of the plan assets by the expected long-term rate of return on plan assets.
B) ending market-related value of the plan assets by the expected long-term rate of return.
C) average carrying value of the plan assets by the expected long-term rate of return on plan assets.
D) beginning carrying value of the plan assets by the actuary's interest rate.

Question 65

On August 31,2014,payroll data from the records of Astroland Enterprises showed:
Provide the entries necessary to:

Question 66

The following information relates to the defined benefit pension plan of the Bamberger Co.:

Question 67

Holster Western Wear,Inc.has a defined benefit pension plan covering its 120 employees.Information relating to the plan follows:
Holster expects a 10 percent return on its pension fund assets.Compute the difference between the actual return and the expected return and explain how this amount affects net periodic pension cost for 2014.

Question 68

Interest cost relating to defined-benefit pension plans represents the

A) increase in projected benefit obligation as a result of recomputing the firm's pension obligation when estimated turnover and other relevant factors related to the pension are reassessed.
B) increase in the projected benefit obligation during the year resulting from all factors affecting the projected benefit obligation.
C) increase in the projected benefit obligation from the beginning of the year to the end of the year solely due to the passage of time.
D) expected return on the plan assets for the year.

Question 69

The following balances relate to the defined benefit pension plan of Rundgren Industries.
No benefits were paid in either 2013 or 2014.
Compute pension expense for 2013 and 2014,assuming minimum amortization is taken.

Question 70

Employees of Mayhem Fabricators,Inc.earned gross wages of $140,000 during a recent two-week period.Employee withholdings and payroll tax percentages are presented below:
Only $78,000 of wages are subject to FICA,and $36,000 are subject to unemployment taxes.

Question 71

Using the information below,compute the gain or loss component of net periodic pension cost and indicate whether the amount is added or deducted in determining pension cost for the period.

Question 72

Costs related to a new pension plan that are necessary to "catch up" for services rendered prior to the inception of the pension plan are classified as

A) service costs.
B) actuarial losses.
C) prior service costs.
D) retroactive deferred charges.

Question 73

One component of net pension expense,unrecognized gains and losses,comes from the following sources:

A) the difference between expected and actual prior service cost.
B) the difference between expected and actual return on plan assets only.
C) PBO changes due to changes in pension assumptions only.
D) PBO changes due to changes in pension assumptions,and the difference between expected and actual return on plan assets.

Question 74

Blue Ice Inc.compensates its employees for certain absences.Employees can receive one day vacation plus one day sick leave for each month worked during the year.Unused vacation days may be carried forward,but unused sick leave expires within the year of employment.Employees are compensated according to their current pay rate.The following data were taken from the records for the year 2014.
Compute the amount that should be reported as a liability for compensated absences on December 31,2014.