UNIVERSITY OF SANTO TOMAS

AMV-COLLEGE OF ACCOUNTANCY
IAC 11-PRACTICAL ACCOUNTING 1

NAME_____________________ SECTION_____

EMPLOYEE BENEFITS

On January 1, 2017, the memorandum records of Grumpy Company showed the following
balances related to its defined benefit plan:

Fair value of plan asset 5,500,000

Defined benefit obligation 4,500,000

The transactions affecting the defined benefit plan for 2017 are as follows:

Current service cost 750,000

Discount rate 10%
Actual return on plan assets 520,000
Contribution to the plan 500,000
Benefits paid to retirees 200,000

1. How much is the balance of prepaid or accrued pension as of Jan. 1, 2017?

a. 1.0M accrued b. 1.0M prepaid c. 4,500,000 prepaid d. 5,500,000 accrued

2. What is the fair value of the plan assets as of December 31, 2017?
a. 5,500,000 b. 6,350,000 c. 6,320,000 d. 5,800,000

3. What amount of the actual return on plan assets should be included in profit
or loss?
a. 0 b. 520,000 c. 30,000 d. 550,000

4. What amount relating to plan assets should be included in other

comprehensive income?
a. 0 b. 520,000 c. 30,000 d. 550,000

On January 1, 2017, the memorandum records of Sneezy Company showed the following
balances related to its defined benefit plan:

Fair value of plan assets 4,500,000

Defined benefit obligation 5,500,000

The transactions affecting the defined benefit plan for 2017 are as follows:

Current service cost 750,000

Discount rate 10%
Contribution to the plan 500,000
Benefits paid to retirees 200,000
Past service cost 300,000
Defined benefit obligation, Dec. 31, 2014 5,200,000

5. How much is the balance of prepaid or accrued pension as of January 1,

2017?
a. 1.0M accrued b. 1.0M prepaid c. 4,500,000 prepaid d. 5,500,000 accrued

Page 1 of 5
 6. What amount of remeasurement gain/loss should be included in other
comprehensive income?
a. 0 b. 1,150,000 c. 1,700,000 gain d. 1,700,000 loss

7. What amount of defined benefit cost should be reported in profit or loss?

a. 0 b. 1,150,000 c. 1,700,000 gain d. 1,700,000 loss

The following information pertains to Sleepy Corporation defined benefit plan for the year
2017:

Defined benefit obligation, January 1, 2017 P 15,000,000

Fair value of plan assets, January 1, 2017 14,000,000
Defined benefit obligation, December 31, 2017 17,410,000
Fair value of plan assets, December 31, 2017 14,920,000
Current service cost 800,000
Discount rate 6%
Benefits paid 1,500,000
Contribution made during the year 1,050,000

8. What amount of defined benefit cost should be reported in profit or loss?

a. 860,000 b. 530,000 c. 2,210,000 d. 1,680,000

9. What amount of net remeasurement gain/loss should be reported in other

comprehensive income?

a. 860,000 b. 530,000 c. 2,210,000 d. 1,680,000

The following information pertains to Doc Corporation defined benefit plan for the year
2017:

Defined benefit obligation, January 1, 2017 P 2,200,000

Fair value of plan assets, January 1, 2017 1,400,000
Actual return on plan assets 90,000
Settlement price of additional DBO settled 200,000
Present value of additional DBO settled 250,000
Defined benefit obligation, December 31, 2017 2,070,000
Current service cost 800,000
Discount rate 10%
Benefits paid to retirees (at scheduled retirement) 700,000
Contribution made during the year 650,000
Past service cost 300,000

10.How much is the total defined benefit cost for the year 2017?
a. 1,130,000 b. 450,000 c. 550,000 d. 680,000

11.What amount of defined benefit cost should be reported in profit or loss?

a. 1,130,000 b. 450,000 c. 550,000 d. 680,000

12.What amount of net measurement gain/loss should be reported in other

comprehensive income?
a. 1,130,000 b. 450,000 c. 550,000 d. 680,000

13.What is the fair value of plan assets as of December 31, 2017?

a. 1,240,000 b. 1,490,000 c. 1,290,000 d. 1,400,000

Page 2 of 5
 14.How much is the balance of prepaid or accrued pension as of December 31,
2017?
a. 2,070,000 b. 1,240,000 c. 830,000 d. 770,000

The following information is made available in relation to the defined benefit plan of Dopey
Company for the year 2017:

January 1 December 31
Fair value of the plan assets 5,200,000 6,000,000
Defined benefit obligation 4,000,000 4,200,000
Prepaid/Surplus 1,200,000 1,800,000

Asset ceiling 400,000 600,000

Effect of asset ceiling 800,000 1,200,000

Other relevant information for 2017 is as follows:

Current service cost 200,000

Contribution to the plan 700,000
Discount rate 10%
Benefits paid to retirees 300,000

15.What amount of defined benefit cost should be reported in profit or loss for
2017?
a. 340,000 b. 160,000 c. 500,000 d. 180,000

16.What is the remeasurement loss related to the change in the effect of asset
ceiling?
a. 320,000 b. 400,000 c. 80,000 d. 200,000

17.What is the total net remeasurement gain/loss to be reported as a

component of other comprehensive income?
a. 120,000 b. 100,000 c. 320,000 d. 340,000

18.How much is the actual return on plan assets for the year 2017?
a. 520,000 b. 120,000 c. 400,000 d. 640,000

19.How much is the overfunding/underfunding for the year 2017?

a. 200,000 over b. 200,000 under c. 600,000 over d. 600,000 under

20.How much is the balance of prepaid pension (asset) or accrued pension

(liability) that should be presented in the statement of financial position as
of December 31, 2017?
a. 1,800,000 b. 600,000 c. 6,000,000 d. 4,200,000

Theory

1. Under some retirement benefit plans, the enterprise retains the obligation for the payment of
retirement benefits under the plan with the establishment of a separate fund. Such retirement
benefit plans are described as
Funded Unfunded
a. Yes Yes
b. Yes No
c. No No
d. No Yes

Page 3 of 5
2. In a defined contribution plan, a formula is used that
a. defines the benefits that the employee will receive at the time of retirement.
b. insures that pension expense and the cash funding amount will be different.
c. requires an employer to contribute a certain sum each period based on the formula.
d. ensures that employers are at risk to make sure funds are available at retirement.

3. In a defined benefit plan, a formula is used that

a. requires that the benefit of gain or the risk of loss from the assets contributed to the
pension plan be borne by the employee.
b. defines the benefits that the employee will receive at the time of retirement.
c. requires that pension expense and the cash funding amount to be the same.
d. defines the contribution the employer is to make; no promise is made concerning the
ultimate benefits to be paid out to the employees.

4. Which is not a component of the retirement benefit expense under a defined benefit plan?
a. current service cost
b. past service cost
c. the result of any plan termination, curtailment or settlement.
d. actual contribution to the plan for the current year.

5. Under a defined contribution plan, the retirement benefit expense is equal to

a. enterprise's contribution to the plan with respect to the services in a particular period.
b. retirement benefits actually paid during the year.
c. present value of the retirement benefits with respect to services rendered in the current
period.
d. present value of the retirement benefits with respect to services rendered in a prior
period.

6. It is the cost to an enterprise under a retirement benefit plan for services rendered by employees in
prior periods resulting from introduction of a retirement benefit plan or amendment of an existing
plan.
Current service cost Past service cost
a. Yes Yes
b. Yes No
c. No No
d. No Yes

7. It occurs when a lump sum cash payment to made to plan participants in exchange for their rights to
receive specified retirement benefits.
a. curtailment c. termination
b. settlement d. pretermination

8. Which is false concerning the actuarial assumptions used in determining the cost of retirement
benefits?
a. The discount rates assumed in determining the actuarial present value of retirement
benefits should reflect long-term rates or an approximation thereof.
b. Plan assets are valued at historical cost.
c. When retirement benefits are based on future salary, salary increases should reflect such
factors as inflation, promotion, and merit awards.
d. Automatic retirement benefit increases such as cost of living adjustments are taken into
account.

9. The vested benefits or an employee represent

a. Benefits to be paid to the retired employee in the current year.
b. Benefits to be paid to the retired employee in the subsequent year.
c. Benefits accumulated in the hand of a trustee.
d. Benefits that are not contingent on the employee's continuing in the service of the
employer.

Page 4 of 5
10. The relationship between the amount funded and the amount reported for retirement benefit
expense is as follows:
a. Retirement benefit expense must equal the amount funded.
b. Retirement benefit expense will be less than the amount funded.
c. Retirement benefit expense will be more than the amount funded.
d. Retirement benefit expense may be greater than, equal to, or less than the amount
funded.

11. When a company adopts or amends a pension plan, the past service costs should be
a. taken in profit or loss.
b. taken in retained earnings.
c. amortized over the average service period of employees.
d. amortized over the service period until benefits become vested.

Page 5 of 5