Accounting

Week 3 Challenge Transcript

Topic: Amortizing Costs Difficulty: 100 When a company amends a pension plan, for accounting purposes, prior service costs should be a. treated as a prior period adjustment because no future periods are benefited. b. amortized in accordance with procedures used for income tax purposes. *c. amortized under accrual accounting to current and future periods benefited. d. treated as an expense of the period during which the funding occurs. Difficulty: 200 Prior service cost is amortized on a a. straight-line basis over the expected future years of service. *b. years-of-service method or on a straight-line basis over the average remaining service life of active employees. c. straight-line basis over 15 years. d. straight-line basis over the average remaining service life of active employees or 15 years, whichever is longer. Difficulty: 300 Whenever a defined-benefit plan is amended and credit is given to employees for years of service provided before the date of amendment *a. both the accumulated benefit obligation and the projected benefit obligation are usually greater than before. b. both the accumulated benefit obligation and the projected benefit obligation are usually less than before. c. the expense and the liability should be recognized at the time of the plan change. d. the expense should be recognized immediately, but the liability may be deferred until a reasonable basis for its determination has been identified. Difficulty: 400 Gillum, Inc. has a defined-benefit pension plan covering its 50 employees. Gillum agrees to amend its pension benefits. As a result, the projected benefit obligation increased by $1,500,000. Gillum determined that all its employees are expected to receive benefits under the plan over the next 5 years. In addition, 20% are expected to retire or quit each year. Assuming that Gillum uses the years-of-service method of amortization for prior service cost, the amount reported as amortization of prior service...