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20 - 20 6 Test Bank for Intermediate Accounting Twelfth...

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Test Bank for Intermediate Accounting, Twelfth Edition 20 - 6 TRUE-FALSE —Conceptual 1. A pension plan is contributory when the employer makes payments to a funding agency. 2. Qualified pension plans permit deductibility of the employer’s contributions to the pension fund. 3. An employer reports no liability on its balance sheet in a defined-contribution plan. 4. Employers are at risk with defined-benefit plans because they must contribute enough to meet the cost of benefits that the plan defines. 5. Companies compute the vested benefit obligation using only vested benefits, at current salary levels. 6. The accumulated benefit obligation bases the deferred compensation amount on both vested and nonvested service using future salary levels. 7. Service cost is the expense caused by the increase in the accumulated benefit obligation because of employees’ service during the current year. 8. The interest component of pension expense is the interest for the period on the projected benefit obligation outstanding during the period. 9. Companies recognize the projected benefit obligation in their accounts and in their financial statements. 10. The Prepaid/Accrued Pension Cost account balance equals the difference between the projected benefit obligation and the pension plan assets. 11. Companies should recognize the entire increase in projected benefit obligation due to a plan initiation or amendment as pension expense in the year of amendment. 12. The FASB requires the years-of-service method for amortization of unrecognized prior service cost. 13. The difference between the expected return and the actual return is referred to as the unexpected gain or loss. 14. The unexpected gains and losses from changes in the projected benefit obligation are called asset gains and losses. 15. The Unrecognized Net Gain/Loss account is limited to 10 percent of the larger of the beginning balances of the projected benefit obligation or the market-related plan assets value. 16. If the unrecognized gain or loss is less than the corridor, the net gains and losses are subject to amortization. 17. A minimum liability is recognized when the projected benefit obligation exceeds the fair value of pension plan assets.
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