Study sets, textbooks, questions
Upgrade to remove ads
Exam 3 ACCT 3120
Terms in this set (57)
which of the following items is designed to provide income to individuals during retirement?
which of the following factors may motivate employers to sponsor a pension plan?
1) to enhance employee loyalty & reduce turnover
2) fulfill moral obligation
3) enhance company's competitiveness in the labor market
which is true regarding qualified pension plans?
they have tax benefits for employees and employer
which type of pension fund guarantees a set amount will be available at retirement?
defined benefit pension plan
which type of defined pension plan has less risk to the employer?
defined ______________ pension plans promise fixed retirement benefits defined by a designated formula to employees after retirement
in a defined _________________ pension plan, the employer records pension expense equal to the amount of the annual contribution
Identify key elements associated with defined benefit pension plans
1) pension expense
2) plan assets
3) pension obligations
The accumulated benefit obligation, the vested benefit obligation, and the projected benefit obligation are all ways to measure the pension obligation. T/F
Smith Corp. sponsors a 401(k) plan for all its full-time employees. The company contributes 3% of each employee's salary to the plan. Total payroll for the year was $2 million. When recognizing the employer's annual contribution, Smith should (Select all that apply.)
credit cash 60,000
debit pension expense 60,000
(2mil * 3% = 60,000)
The estimate of the total retirement benefits discounted to present value, earned so far by employees using existing compensation levels is the
accumulated benefit obligation.
accumulated benefit obligation
The actuary's estimate of the present value of the total retirement benefit earned so far by employees
based on existing compensation levels.
Projected benefit obligation
The actuary's estimate of the present value of the total retirement benefit earned so far by employees incorporating estimated future salary levels.
most representationally faithful
Vested benefit obligation
The actuary's estimate of the present value of the total retirement benefits earned by employees if they left the company today.
Benefits that employees have the right to receive even if their employment were to cease
The employer's obligation, the plan assets, and the periodic expense of having the pension plan are key elements of a defined ____________ pension plan
Which of the following components of pension expense reduce the expense?
1) expected return on plan assets
2) amortization of gains
Smith Company sponsors a defined benefit pension plan. The beginning balance of plan assets is $5 million; the beginning balance of the PBO is $5.5 million; the expected rate of return is 8%, the discount rate is 6%, and the salary trend rate is 4%. The interest cost is equal to
(5.5mil x 6% = 330,000) (PBO*discount rate)
Which of the following factors may change the balance of the PBO?
1) payments to employees
2) gains losses
Greene Company sponsors a defined benefit pension plan. During the current year, the company retroactively changes the benefit formula from the current—1.5% x service years x final year's salary—to 1.8% x service years x final year's salary. As a result of this change, prior service cost will
The projected benefit obligation _____ each year by the amount of that year's service cost.
Which of the following will increase the PBO?
Loss on PBO
The following information pertains to Carter Company's defined benefit pension plan: PBO beginning balance: $100,000; current year service cost: $8,000, interest cost: $10,000; actuarial gains: $2,000, employer contributions to plan: $10,000, payments to retirees: $5,000. The ending balance of the company's PBO is
($100,000 + $8,000 + $10,000 - $2,000 - $5,000 = 111,000)
The following information pertains to Blum Company's defined benefit pension plan: PBO beginning balance: $100,000; current year service cost: $10,000, interest cost: $8,000; actuarial loss: $3,000, employer contributions to plan: $12,000, payments to retirees: $6,000. The ending balance of the company's PBO is
(100,000 + 10,000 + 8,000 + 3,000 - 6,000 = 109,000)
The following information relates to Bay Company's pension plan. Beginning balance in plan assets: $600,000; cash contributions to pension plan: $70,000; payments to retirees: $50,000; actual return on plan assets: $56,000; expected rate of return on plan assets: 8%; discount rate: 6%. The plan asset ending balance will be
($600,000 + $70,000 + $56,000 - $50,000)
At the beginning of the year, Klein Company's pension plan showed pension plan assets of $4 million and a PBO of $4.5 million; unamortized prior service cost of $500,000; and no unamortized gains or losses. During the year, service cost was $310,000; $400,000 was paid to retirees; and the company contributed $340,000 to the plan. The expected return on plan assets was 8% and the discount rate estimate was 6%. The plan assets earned an actual return of 5%. The average remaining service period is 10 years. At the end of the year, the balance of the pension plan assets will be
4 million + actual return 200,000 + contribution to plan 340,000 - paid to retirees 400,000 = $4,140,000
Sheller Company estimates that its pension plan asset will earn a return of 10%. The beginning balance of plan assets was $500,000 and the ending balance was $560,000. During the year, the plan earned an actual return of 8%. As a result of this, pension expense will decrease by
$500,000 x 10% = $50,000
Sheller Company estimates that its pension plan asset will earn a return of 10%. The beginning balance of plan assets was $500,000 and the ending balance was $560,000. During the year, the plan earned a return of 8%. This will result in a
$500,000 x 10% = $50,000 $500,000 x 8% = $40,000 $50,000 - $40,000
loss of $11,200.
Net assets equal
When investors purchase shares of stock in a corporation, the corporation records the transaction as
Which of the following accurately describes shareholders' equity?
Ownership interests of the shareholders
Shares of stock previously sold by the corporation that are repurchased are called
Shareholders' equity consists of which of the following items?
amounts earned by the corporation
amounts invested by shareholders
How should cash dividends be reported on the statement of shareholders' equity?
As a reduction of retained earnings.
A business that has equity accounts labeled "common stock" and "retained earnings" is a
Which of the following is subject to double taxation?
Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation?
Corporations raise capital by
operating at a profit.
Who regulates the nature of shares that can be authorized, the issuance and repurchase of those shares, and the distributions to shareholders?
The state in which the corporation is incorporated
True or false: A corporation is owned by debt and equity holders.
A corporation is owned by its shareholders, who are equity holders.
Which type of stock usually has a high par value and a percentage of par value dividend rate?
Mandatorily redeemable preferred stock is reported as
a liability on the balance sheet.
In order to receive a dividend, investors must purchase shares of stock before the
A restriction of retained earnings signifies that
a portion of retained earnings is not available for dividends.
Gosling Corp. has 100,000 shares of common stock authorized, 80,000 shares issued, and 20,000 shares of treasury stock. Gosling declares a dividend of $0.10 share. Which of the following entries is required at the date of declaration?
Debit retained earnings $6,000
80,000 shares issued - 20,000 treasury = 60,000 outstanding x $.10 per share
When does a dividend become a liability to a corporation?
When it is declared by the board of directors
True or false: No journal entry is required on the date of record.
A property dividend is recorded at
the fair value of the assets at the dividend declaration date.
Which type of dividend does not reduce the assets of the firm or create a liability?
A small stock dividend is usually less than ______% of the number of shares of stock outstanding.
Distributions of stock to current shareholders of a corporation are called what type of distribution?
A frequent reason for a stock split is to
cause the market price per share to decline.
Which of the following describe the ways in which companies may record stock splits effected in the form of dividends?
Capitalize retained earnings.
Reduce the paid-in capital in excess of par account.
Canton has 60,000 shares of $10 par issued and outstanding. Canton declares a 2-for-1 stock split. What is the par value and number of shares outstanding after the stock split?
$5 par; 120,000 shares
Reynolds Corp. has 100,000 shares of $1 par value common stock issued and outstanding. Reynolds declares a 20% stock dividend when the fair value of the stock is $8 per share. The debit to retained earnings for the stock dividend is
100,000 x 20% = 20,000 shares x $8 = $160,000
When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 10 shares, this is referred to as a(n)
reverse stock split.
A reverse stock split requires
no journal entry.
Return on shareholders' equity indicates the percent of corporate earnings for each dollar of total equity invested in the corporation, whereas the earnings-price ratio reflects the percentage earned for each dollar of
market value of common stock.
Recommended textbook explanations
Glencoe Accounting: First Year Course
Don Herrmann, J. David Spiceland, Wayne Thomas
Bradford D. Jordan, Randolph W. Westerfield, Stephen A. Ross
Sets with similar terms
Accounting 343 Chapter 20
Chapter 17 - Pensions
ACC 327 chapter 20
Other sets by this creator
Financial Management Midterm
Midterm 2 Globalization
Globalization Quiz (Chp. 6, 7, 8)
Other Quizlet sets
EXAM 1 (ch.5-Contraception: Planning and Preventin…
organismal bio test 2
Module 1 - Reading Quiz Week 2: Electric Charge an…
Microeconomics Chapter 15 Quiz