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Accounting for Defined Benefit Pension Plans: Exercises and Questions, Exams of Accounting

A series of exercises and questions related to accounting for defined benefit pension plans under ifrs. It covers topics such as calculating pension expense, defined benefit obligation (dbo), and plan assets. The exercises provide practical application of the accounting principles and help to solidify understanding of the concepts.

Typology: Exams

2024/2025

Available from 01/21/2025

TheAcademicAce
TheAcademicAce 🇺🇸

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estion 1
On January 1, 20X8, the net defined benefit liability on the financial statements of Abel Co. was
$250,000. Abel follows IFRS.
Abel’s controller provided the following information to you for the period of January 1 to December 31,
20X8:
· Total benefits in the amount of $10,000 were paid evenly throughout the year.
· The company contributed $200,000 during the year.
· The current service costs were determined to be $50,000.
· The net interest cost on the defined benefit obligation was $30,000.
· There were no remeasurement gains or losses during the year.
What is the balance of the net defined benefit liability on Abel’s December 31, 20X8, financial
statements?
a) $120,000
b) $130,000
c) $330,000
d) $530,000
View Feedback
Question 2
A new associate at your firm, Charles and Row LLP, has emailed you in a panic. “I need help! I have
gathered the following items for the calculation of a defined benefit pension plan expense for a period
and I am not sure which item doesn’t belong. The company reports under IFRS.”
Which item should the associate remove from his calculation?
a) The current service cost as determined by the actuarial present value of benefits attributed to employees’ services rendered
during that period
b) The net interest cost on the defined benefit liability
c) Past service cost arising from a plan amendment
d) Benefits paid to retirees during the period
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tion 1 On January 1, 20X8, the net defined benefit liability on the financial statements of Abel Co. was $250,000. Abel follows IFRS. Abel’s controller provided the following information to you for the period of January 1 to December 31, 20X8: · Total benefits in the amount of $10,000 were paid evenly throughout the year. · The company contributed $200,000 during the year. · The current service costs were determined to be $50,000. · The net interest cost on the defined benefit obligation was $30,000. · There were no remeasurement gains or losses during the year. What is the balance of the net defined benefit liability on Abel’s December 31, 20X8, financial statements? a) $120, b) $130, c) $330, d) $530, View Feedback estion 2 A new associate at your firm, Charles and Row LLP, has emailed you in a panic. “I need help! I have gathered the following items for the calculation of a defined benefit pension plan expense for a period and I am not sure which item doesn’t belong. The company reports under IFRS.” Which item should the associate remove from his calculation? a) The current service cost as determined by the actuarial present value of benefits attributed to employees’ servi during that period b) The net interest cost on the defined benefit liability c) Past service cost arising from a plan amendment d) Benefits paid to retirees during the period

View Feedback estion 3 Good Company Ltd., a public company, initiated a defined benefit pension plan on January 1, 20X6. The plan defines the pension benefits for future service, as well as provides benefits for past service. An actuary calculated the defined benefit obligation (DBO) at January 1, 20X6, to be $550,000. It is now December 31, 20X8, and you are provided with the following information for 20X8: Current service cost for 20X8 $125, Interest cost on DBO 34, Actual return on plan assets 28, Present value of DBO, January 1, 20X8 680, Contributions paid to the plan in 20X8 130, Retirement benefits paid to retirees in 20X8 22, Remeasurement loss, December 31, 20X8 on DBO 11, What is the balance in the DBO at December 31, 20X8? (This would be the present value calculated by the actuary.) a) $703, b) $806, c) $828, d) $850, View Feedback estion 4 On January 1, 20X8, the net defined benefit liability on the financial statements of Abel Co. was $250,000. Abel follows IFRS. Abel’s controller provided the following information to you for the period of January 1 to December 31, 20X8:

What is the pension expense for 20X6? a) $ b) $ c) $ d) $ View Feedback estion 6 Dickson Manufacturing Corp., a company reporting under IFRS, has a defined benefit pension plan. Pension information concerning the 20X5 and 20X6 fiscal years is presented below (in millions): Information provided by the pension plan actuary DBO, December 31, 20X5 $1, Past service cost from a plan amendment made January 2, 20X6 400 Current service cost for 20X6 520 20X6 interest cost on DBO, based on 10% discount rate 180 20X6 remeasurement gain on DBO arising from a change in estimate 250 Benefits paid 0 Funding for the year 0 Information provided by the pension plan trustee Fair value of plan assets, January 1, 20X6 $1, Actual return on plan assets 224 What is the balance of the plan assets as at December 31, 20X6? a) $1,

b) $1, c) $1, d) $1, View Feedback estion 7 Dickson Manufacturing Corp., a company reporting under IFRS, has a defined benefit pension plan. Pension information concerning the 20X5 and 20X6 fiscal years is presented below (in millions): Information provided by the pension plan actuary DBO, December 31, 20X5 $1, Past service cost from a plan amendment made January 2, 20X6 400 Current service cost for 20X6 520 20X6 interest cost on DBO, based on 10% discount rate 180 20X6 remeasurement gain on DBO arising from a change in estimate 250 Benefits paid 0 Funding for the year 0 Information provided by the pension plan trustee Fair value of plan assets, January 1, 20X6 $1, Actual return on plan assets 224 What is the net defined benefit liability/asset balance on the balance sheet at January 1, 20X6? a) $200 net defined benefit liability b) $200 net defined benefit asset c) $1,800 net defined benefit asset

estion 9 Dickson Manufacturing Corp., a company reporting under IFRS, has a defined benefit pension plan. Pension information concerning the 20X5 and 20X6 fiscal years is presented below (in millions): Information provided by the pension plan actuary DBO, December 31, 20X5 $1, Past service cost from a plan amendment made January 2, 20X6 400 Current service cost for 20X6 520 20X6 interest cost on DBO, based on 10% discount rate 180 20X6 remeasurement gain on DBO arising from a change in estimate 250 Benefits paid 0 Funding for the year 0 Information provided by the pension plan trustee Fair value of plan assets, January 1, 20X6 $1, Actual return on plan assets 224 What is the amount to be reported as other comprehensive income (OCI) for 20X6? a) Loss of $ b) Income of $ c) Income of $ d) Loss of $ View Feedback estion 10 McKay Corp. has 400 employees, each of whom is entitled to seven working days of paid sick leave each calendar year. Any unused days not taken as of December 31 will be carried forward for one year. McKay

Corp. has a policy, however, that the current-year entitlement must be used prior to the usage of any days that were carried forward (that is, last in, first out [LIFO]). For the year ended December 31, 20X7, the average unused entitlement was three days per employee. McKay Corp. has experienced that given this, 94% of employees will likely take no more than six paid sick leave days in the upcoming year, and that the remaining 6% of employees will take an average of nine days. How many sick days need to be accrued for McKay Corp. at December 31, 20X7? a) 216 sick days should be accrued as a liability b) 48 sick days should be accrued as a liability c) 2, 800 sick days should be accrued as a liability d) 1,200 sick days should be accrued as a liability View Feedback estion 11 General Monitoring (GM) provides a defined contribution plan for its employees. The plan dictates that GM must make a monthly contribution to the plan on the first of each month. This contribution is equal to 3% of each employee’s gross annual salary. Karen earns an annual salary of $150,000. Which of the following entries would GM be required to make to record its monthly contribution to the plan for Karen? a) Dr. Employee benefit expense $4, Cr. Cash $4, b) Dr. Employee benefit expense $ Cr. Accumulated defined contribution obligation $ c) Dr. Employee benefit expense $4, Cr. Accumulated defined contribution obligation $4, d) Dr. Employee benefit expense $ Cr. Cash $

estion 3 Leroy Corp. started a defined contribution plan in 20X2. In 20X3, the company amended the plan. To pay for the plan amendments, the company agreed to contribute $100,000 for each of the years 20X4, 20X5, and 20X6. What will be the journal entry required to record the last payment in 20X6, assuming a discount rate of 4%? a) Dr. Pension payable $104,000; Cr. Pension expense $4,000; Cr. Cash $100, b) Dr. Pension expense $96,154; Dr. Interest expense $3,846; Cr. Cash $100, c) Dr. Prepaid past service costs $96,154; Dr. Interest expense $3,846; Cr. Cash $100, d) Dr. Pension payable $96,154; Dr. Interest expense $3,846; Cr. Cash $100, View Feedback estion 4 Quencor Inc. started a new defined contribution plan this year. During the year, the company paid $250,000 into this pension plan. At the end of the year, the current service cost was determined to be $210,000, lower than expected. Any excess payment can be used to reduce next year’s payment. What is the journal entry required to recognize the current service cost and the payment made during the year? a) Dr. Pension expense $210,000; Dr. Prepaid asset $40,000; Cr. Cash $250, b) Dr. Pension expense $250,000; Cr. Cash $250, c) Dr. Pension expense $210,000; Dr. Net defined pension liability $40,000; Cr. Cash $250, d) Dr. Pension plan assets $250,000; Dr. Pension expense $210,000; Cr. Pension benefit obligation $210,000; Cr. Cash View Feedback estion 5 Savon Inc. has a defined contribution plan. During 20X6, its current service cost was $350,000 and Savon paid this amount by the end of 20X6. In 20X5, Savon had amended its plan for past services. The amendment required $890,000 to be paid

into the plan. Savon paid this amount in two equal instalments of $445,000 in 20X5 and $445,000 in 20X6. The plan amendment related to past services provided by employees in 20X2, 20X3, and 20X4. What is the amount of the pension expense for 20X6? a) $350, b) $528, c) $795, d) $1,240, View Feedback tion 1 On January 1, 20X1, Public Co. (Public) issued share options to its four executives. Each executive holds 100 options that had a fair value on the grant date of $350 each. The options had a vesting period of two years. Public anticipated that all options would vest. However, in 20X2, one of the executives left the company for an offer from a competitor. What is the expense related to the options that would be recognized in 20X2? a) $35, b) $52, c) $70, d) $105, View Feedback estion 2 Trading Inc. had share options vest on January 1, 20X3. The options were recorded as “compensation expense” and “contributed surplus — share options” over the three-year vesting period. 1,000 share options vested with a recorded value of $40,000. The share options allow the holder to purchase Trading’s shares for $50 each. Options expire on December 31, 20X3. During 20X3, 600 options are exercised and 400 expire.

View Feedback estion 4 Superior Inc. grants 4,000 share appreciation rights (SARs) on January 1, 20X5, to its employees. The following information relates to the SARs:  The SARs have a vesting period of two years and must be exercised on January 1, 20X7.  At December 31, 20X5, it is estimated that 95% of employees will qualify for the SAR redemption. Fair value of the SARs is $10 and market value of the shares is $60.  At December 31, 20X6, 80% of employees qualify for the SAR redemption. Fair value of the SARs is $18 and market value of the shares is $85.  On January 1, 20X7, the market value of the shares is $75. What is the balance in the SAR liability account just prior to settlement on January 1, 20X7, assuming all other journal entries have been made correctly in 20X5 and 20X6? a) $32, b) $57, c) $68, d) $240, View Feedback estion 5 Which of the following statements is correct? a) Under IFRS, options are valued using an option pricing model; under ASPE the options are valued at intrinsic value for reportin purposes. b) Under IFRS and ASPE, when options are exercised, the difference between the exercise price and the current market share pric is used to determine the issue price of the common shares. c) Under ASPE, cash-settled share appreciation rights (SARs) are measured at their intrinsic value, rather than fair value. IFRS requires that cash-settled SARs be measured at fair value.

d) Under IFRS and ASPE, granted stock options are recognized as compensation expense in the year they are exercised. View Feedback tion 1 A company is considering providing its employees with a form of share-based compensation. The owner is trying to determine the best plan for the company’s needs. In explaining to the owner the impact of share options, which of the following statements is true during the vesting period? a) Share options impact the company’s cash flow. b) Share options negatively impact debt-to-equity ratios. c) Share options impact net income d) Share options do not align option holders’ objectives with those of the company. View Feedback estion 2 Solar Inc. (Solar) issued stock options on January 1, 20X2, to its employees. The options vest on December 31, 20X3, and expire on December 31, 20X9. The exercise price is $4.00 and Solar’s share price at the time of the grant was $3.00. Which of the following statements is correct with respect to these options? a) The share options cannot be exercised during the period January 1, 20X2, to December 31, 20X3. b) On the date of the grant, the fair market value of each option was $0, since the share price is lower than the ex c) When the options are exercised, the employee will receive $4.00 per option from the company. d) The expense related to granting share options is recognized fully on the date of the grant. View Feedback

purposes. d) If an individual is a deemed resident of Canada, that individual is considered to reside in the province where the most time while in Canada, and will be required to pay provincial tax in that province. View Feedback estion 3 Jamie is single, has no children, and works for a multinational corporation. From January 1 to September 30, Jamie lived in Canada but spent 1.5 weeks per month in the United States doing working there. In early September, Jamie worked on a large project that required her to spend more time in the United States. On September 30, Jamie severed ties with Canada and moved to the United States. She still travels to various Canadian cities one week each month to work. Jamie earns $3,000 per week. Which of the following statements is true? (Assume that one month equals four weeks.) a) Jamie will pay tax in Canada on $76,500 of income. b) Jamie will pay tax in Canada on $108,000 of income. c) Jamie will pay tax in Canada on $117,000 of income. d) Jamie will pay tax in Canada on $144,000 of income. View Feedback estion 4 Which of the following statements regarding the residency of a corporation for Canadian tax purposes is true? a) A corporation, incorporated in Canada after April 26, 1965, will not be considered a resident of Canada in the cu central management and control of the company is not located in Canada in the current year. b) A corporation, not incorporated in Canada, will be considered resident in Canada for tax purposes in the curren management and control of the corporation is located in Canada in the current year. c) A corporation, incorporated in Canada before April 27, 1965, will be considered a resident of Canada in the curr central management and control of the corporation is not currently located in Canada. d) A corporation, not incorporated in Canada, but resident in Canada for several years, will be considered a reside

the current year even if central management and control of the corporation is not currently located in Canada. View Feedback estion 5 Shannon is a 48-year-old Canadian citizen. He is married and has a dependent child. He and his family lived in Calgary until October 15, at which time the family moved to California where Shannon had accepted a permanent full-time job. Shannon and his wife signed a one-year lease on an apartment, as they wanted to learn more about the area before they purchased a home. Shannon’s job requires that he return to Calgary one week per month, so he retained his Calgary gym club membership and his Calgary Public Library card, as he is an avid reader. He is renting his Calgary home to his sister and her family, which is very convenient, as he is able to stay with them when he returns to Calgary to work. Shannon wants to ensure that he is considered a non-resident for Canadian tax purposes. Which of the following would be most important for him to do to achieve this objective? a) Reduce the number of trips back to Canada. b) Purchase a house in California. c) Either sell the Calgary home or rent it to an arm’s length party for a longer-term lease. d) Immediately cancel his gym club membership and Calgary Public Library card. View Feedback estion 6 Kim moved from Canada to Mexico during the year for work purposes. Her only daughter is married and has a two-year old son. Kim returns to Canada for short periods of time to visit them. As well, she did not sell her home or car but instead has allowed her sister to live in the home rent free for the year and kept the car in the spare garage space in the backyard. In determining whether Kim is a resident of Canada at the end of the year, primary and secondary ties are considered. Which of the following is a primary tie? a) Kim has a child living in Canada. b) Kim maintains a vehicle in Canada. c) Kim maintains a dwelling in Canada.

View Feedback estion 3 Marco’s net taxes owing in 2020 and 2021 was $40,000 and $30,000, respectively. Marco estimates that his net taxes owing for 2022 will be $36,000. Which of the following is Marco’s instalment payment due on March 15, 2022? Use the method of calculating instalments that the Canada Revenue Agency (CRA) applies to determine the amount to include in its instalment reminders to taxpayers. a) $7, b) $8, c) $9, d) $10, View Feedback estion 4 Haphazard Inc. (HI) qualifies as a small Canadian-controlled private corporation (CCPC) and its taxation year end is December 31. Taxes payable for HI in 2020 and 2021 totalled $10,000 and $15,000, respectively, and HI’s estimated taxes payable for 2022 equals $8,000. Which of the following is the date of HI’s first instalment payment due for the 2021 taxation year? a) January 31, 2022 b) February 29, 2022 c) March 31, 2022 d) June 30, 2022 View Feedback

estion 5 Haphazard Inc. (HI) qualifies as a small Canadian-controlled private corporation (CCPC) and its taxation year end is December 31. Taxes payable for HI in 2020 and 2021 totalled $10,000 and $15,000, respectively, and HI’s estimated taxes payable for 2022 equals $8,000. Which of the following is the minimum amount of HI’s first instalment payment for the 2022 taxation year? a) $ b) $1, c) $2, d) $3, View Feedback estion 6 Graydon Snider, who is employed, filed his 2020 personal income tax return on June 14, 2021. The correct amount of tax owing was $70,000 and Graydon paid the amount in full upon filing. He was assessed a penalty last year for the late filing of his 2019 tax return. Which of the following amounts is closest maximum interest and penalties that could be assessed to Graydon regarding his 2020 return? Assume prescribed rate for the period equals 1%. a) $8, b) $5, c) $8, d) $8, View Feedback