ACC 221 – 1st Exam (MSA1)

1. Statement 1: Under the defined contribution plan, the entity’s obligation is to provide the agreed
benefits to current and former employees.
Statement 2: Postemployment benefits include housing, car and free or subsidized goods.
a. Statement 1 is true c. Both statements are true
b. Statement 2 is true d. Both statements are false

2. The following are correct concerning the recognition and measurement of a defined benefit plan.
Which is incorrect?
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.

3. These are assets held an entity, the fund itself, that is legally separate from the reporting entity and
exists solely to pay or fund employee benefits.
a. Plan assets c. Retirement fund
b. Trust fund d. Pension assets

4. The following are correct concerning the basic accounting consideration for a defined benefit plan?
Which is incorrect?
a. The fair value of plan assets is classified as noncurrent asset and the projected benefit obligation
is classified as noncurrent liability in the statement of financial position.
b. The projected benefit obligation is the present value of expected future payments required to
settle the obligation arising from employee service in the current and prior periods.
c. If the fair value of plan assets is more than the projected benefit obligation, the plan is overfunded
and there is a prepaid benefit cost.
d. The fair value of the plan asset is the source of fund set aside in meeting future benefit payments.

5. An employee sponsoring a defined benefit pension plan must report a liability in the statement of
financial position equal to
a. The current year pension cost that was not funded.
b. The difference between the fair value of plan assets and the projected benefit obligation.
c. The difference between the accumulated benefit obligation and the projected benefit obligation.
d. The difference between the fair value of plan assets and the accumulated benefit obligation.

6. Which is not a characteristic of short-term employee benefits?

a. No actuarial assumption are required to measure the benefit obligation.
b. There is no possibility of any actuarial gain or loss.
c. Short-term employee benefit by definition are payable no later than twelve months after the end
of the current period.
d. Short-term employee benefit obligation are measured on a discounted basis.

7. Short-term employee benefits include all of the following, except:

a. Wages, salaries and social security contributions.
b. Short-term compensated absences.
c. Profit-sharing and bonuses payable in more than twelve months after the end of the period in
which the employees render the related service.
d. Nonmonetary benefits for current employees, such as medical care, housing, car and free and
subsidized goods.

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8. The following statements concerns the right of an ordinary shareholders. Which is incorrect?
a. The right to share in the earnings of the corporation when dividends are declared.
b. The right to vote to the election of the board of directors of the corporation.
c. The right to direct ownership of the corporate assets.
d. The right to share proportionately in corporate asses in case of liquidation if such assets exceed
the claims of creditors.

9. The par value of an ordinary share represents

a. The liquidation value of the share.
b. The book value of the share.
c. The legal nominal value assigned to the share.
d. The amount received by the corporation when the share was originally issued.

10. When collectability is reasonably assured, the excess of subscription price over the stated value of
the no-par subscribed share capital shall be recorded as
a. No par share capital.
b. Share premium when the subscription is recorded.
c. Share premium when the subscription is collected.
d. Share premium when the share capital is issued.

Problem Solving – 2 points each

11. Rhea Company provided the following data:

Jan. 1 FV of plan assets 8,750,000

Projected benefit obligation 7,150,000

The following are the transaction for the year:

Pension benefits paid 600,000

Contribution to the fund 700,000
Actual return on plan assets 950,000

What is the fair value of the plan asset on December 31?

FV of PA – Jan. 1 8,750,000
Contribution to the fund 700,000
Actual return on plan assets 950,000
Benefits paid ( 600,000)
FV of PA – Dec. 31 9,800,000

Prepare the necessary entry to record the above transaction.

P/ABC 1,650,000
Unrealized holding gain – OIC 950,000
Cash 700,000

FVPA – beg 8,750,000

Contribution 700,000
Actual return 950,000
Benefits paid ( 600,000)
FVPA – end 9,800,000

PBO – beg 7,150,000

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 Benefits paid ( 600,000)
PBO – end 6,550,000

P/ABC - end 3,250,000

FVPA – beg 8,750,000

PBO – beg 7,150,000
P/ABC – beg 1,600,000
Adjustment - 1,650,000
P/ABC – end 3,250,000

12. At the beginning of current year, Jade Company provided the following data in connection with a
defined benefit plan:

Fair value of plan assets 6,700,000

Projected benefit obligation 7,600,000

The accountant revealed the following information for the current year:

Current service cost 1,450,000

Past service cost 300,000
Discount rate 10%
Actual return on plan assets 1,500,000
Benefits paid to retirees 800,000

How much is the benefit expense for the current year?

Current service cost 1,450,000

Past service cost 300,000
Interest expense (10% x P7.6M) 760,000
Interest income (10% x P6.7M) ( 670,000)
Employee Benefit Expense 1,840,000

Prepare the necessary entry to record the above transaction.

Employee Benefit Expense 1,840,000

Unrealized holding gain -OCI 830,000
P/ABC 1,010,000

Actual return 1,500,000

Interest income 670,000
Unrealized holding gain – OCI 830,000

FVPA – beg 6,700,000

PBO 7,600,000
P/ABC – beg ( 900,000)
Adjustment - P/ABC (1,010,000)
P/ABC – end (1,910,000)

FVPA – beg 6,700,000

Actual return 1,500,000
Benefits paid ( 800,000)
FVPA – end 7,400,000

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 PBO – beg 7,600,000
Current service cost 1,450,000
Past service cost 300,000
Interest expense 760,000
Benefits paid ( 800,000)
PBO – end 9,310,000

13. Solaña Company has established a defined benefit plan for the employee. Annual payments under
the plan are equal to highest lifetime salary multiplies by 3% multiplied by the number of years with
the entity. On December 31, 2022, an employee had worked with the entity for 10 years. The current
annual salary of the employee is P500,000.

The employee is expected to retire in 10 years and the increase in salary is expected to be 5% per
year. The discount rate is 8%. The employee is expected to live 10 years after retirement and shall
receive the first annual pension payment one year after retirement.

Compute the future salary.

P500,000 x 1.6289 = 814,450

How much is the projected benefit obligation on December 31, 2022?

Annual Pension – 814,450 x 3% x 10 yrs = 244,335

PV of annuity of P1 at 8% for 10 yrs = 6.7101
PV – 12/31/2042 = 1,639,512
PV of P1 at 8% for 20 years = 0.2145
PBO – 12/31/2022 = 351,675

14. Samcarl Company reported the following information with respect to a defined benefit plan:

2022 2021
Employee benefit expense 1,200,000 800,000
Contribution 1,050,000 1,100,000

Prepare the entry for 2022.

Employee benefit expense 1,200,000

Cash 1,050,000
P/ABC 150,000

How much is the Prepaid/Accrued Benefit Cost at December 31, 2022? P150,000

2021: Employee benefit expense 800,000

P/ABC 300,000
Cash 1,100,000

2022: Employee benefit expense 1,200,000

Cash 1,050,000
P/ABC 150,000

15. Myra Company was organized at the beginning of the current year with an authorized share capital
of P5,000,000 consisting of P50,000 shares of P100 par value.

On January 1, subscriptions were taken for 37,000 at par.

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 A shareholder transferred to the corporation in partial payment of the subscription the following
assets and liabilities:

Accounts Receivable 350,000

Notes receivable 70,000
Inventory 680,000
Accounts payable 100,000
Land 150,000
Building 850,000

A corporation received a bill on January 10 in the amount of P50,000 from the legal counsel for
organization services rendered. The counsel accepted 500 shares in full payment.

Received the full payment of the subscription at the end of the year.

How much is the total shareholders’ equity at year-end?

Capital Share Subscription Receivable Subscribed CS

3,700,000 3,700,000
(2,000,000)
500 50,000
37,000 3,700,000 (1,700,000) (3,700,000)
37,500 3,750,000 0 0

Prepare the entry to record the partial payment of the subscription.

Accounts receivable 350,000

Notes receivable 70,000
Inventory 680,000
Land 150,000
Building 850,000
Accounts payable 100,000
Subscription receivable 2,000,000

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