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Flashcards: Accrued Payroll Expense

A company has a defined benefit plan in operation that covers six employees who have an average of 5 years left to work. On January 1, Year 5, the company amends the plan and this amendment results in an increase in the pension benefit obligation of $350,000. Also in Year 5, the plan's actuary updates the plan's assumptions, which increases the pension benefit obligation by $220,000. What amount is reported in accumulated other comprehensive income related to the defined benefit plan at the end of Year 5?

$70,000

$290,000

$500,000

$220,000

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Flashcards: Accrued Payroll Expense

Your answer:

$70,000

Your answer:

$290,000

Your answer:

$220,000

Correct answer:

$500,000

Explanation:

The amount reported in AOCI is the amount of these changes that has not yet been amortized. For the plan amendment, amortization begins in the current year over the 5 years the employees plan to continue working ($350K / 5 years = $70K). Therefore, $280K remains in AOCI. For the changes in assumptions, amortization will not begin until the following year, so $220K remains in AOCI.

Flashcards: Accrued Payroll Expense

A company starts a defined benefit pension plan on January 1, Year 1. The service cost for the year is $250,000 and plan funding each year is $175,000 (made each January 1). Interest on the projected benefit obligation is 8% while the expected return on plan assets is 10%. How much is pension expense in Year 2?

$250,000

$210,750

$233,250

$192,500

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Flashcards: Accrued Payroll Expense

Your answer:

$250,000

Your answer:

$210,750

Your answer:

$192,500

Correct answer:

$233,250

Explanation:

Pension service cost is recorded at the end of each Year, with the PBO determined at that time. PBO at the end of Year 1 is equal to $250K. Plan assets at the end of Year 1 are equal to the $175K deposited in January plus the assets earnings over Year 1 of $17,500 ($175K x 10%). Pension expense in Year 2 is equal to $250K service cost + $20K ($250K PBO x 8%) - $36,750K ($367,500 x 10%)

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Flashcards: Accrued Payroll Expense

Flashcards: Accrued Payroll Expense

Flashcards: Accrued Payroll Expense

Flashcards: Accrued Payroll Expense

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Flashcards: Accrued Payroll Expense

Flashcards: Accrued Payroll Expense

Flashcards: Accrued Payroll Expense

Flashcards: Accrued Payroll Expense

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DMCA Complaint

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