Question 1:
Which of the following does NOT directly change Pension Expense?
Answer: Prior Service Costs
Prior Service Costs are initially recognized in Other Comprehensive Income (OCI) and are amortized into pension expense over time, rather than directly affecting pension expense immediately.
Question 2:
Which of the following is correct regarding Defined Benefit Pension Plans’ effect on financial statements?
Answer: Pensions are reported as a net obligation/net asset on the balance sheet.
Defined Benefit Plans are presented on the balance sheet as a net amount, which is the difference between the plan's assets and its obligations.
Question 3:
True or false: Defined contribution plans shift risk to the employee (instead of the employer).
Answer: True
In defined contribution plans, employees bear the investment and longevity risk because the employer's obligation is limited to their contributions.
Question 4:
Does Karlach's Forge have to amortize the accumulated gains? And if yes, how much?
Answer: No, the accumulated gains are less than the net pension obligation, so they do NOT have to be amortized.
The corridor test requires amortization only if accumulated gains/losses exceed 10% of the greater of the PBO or plan assets. In this case, $5,500 is less than 10% of $48,000 (PBO).
Question 5:
Which of the following is NOT initially accumulated to OCI?
Answer: Contributions
Contributions are directly added to the plan assets and do not go through OCI.
Yes, $700
No, the accumulated gains are less than net pension obligation, so they do NOT have to be amortized.
Yes, $35
Yes, $65