CPA Financial Accounting and Reporting (FAR) : Retirement Benefits
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #1 : Retirement Benefits
Under state law, Warner Company pays 2% of eligible gross wages for unemployment insurance. Eligible gross wages are defined as the first $12,000 of wages earned by each employee during a year. Warner had 5 employees, each of whom earned $40,000 during Year 2. What will Warner record as unemployment insurance expense for the year?
$1,200
$800
$4,000
240
$1,200
Warner will calculate unemployment tax on the first $12K of wages for each of the five employees. $12K x 5 employees x 2%.
Example Question #2 : Retirement Benefits
Gable Corp is obligated to pay its CEO a year-end bonus equal to 5% of the company's income after the deduction of the bonus and before income tax. Gable's income before the bonus and income tax for Year 1 was $125,000 and Gable's income tax rate was 30%. What amount should Gable accrue in Year 1 for the CEO's bonus?
$5,952
$6,250
4,167.00
$1,786
$5,952
The bonus must be equal to 5% of the company's income after considering the bonus. Therefore, B = .05 x ($125K - B). The bonus can be calculated by solving for B.
Example Question #3 : Retirement Benefits
On January 3, Year 2, Lamar Corporation pays gross wages to its employees totaling $200,000. Employees of Lamar get paid every two weeks, and each pay period is also two weeks. What amount of wage expense should Lamar accrue as a liability at December 31, Year 1?
157,143.00
$168,498
$100,000
$200,000
157,143.00
If each paycheck, includes $200K in wages, that means each day includes $14,286 in wages ($200K / 14 days). The last paycheck of Year 1 includes 11 days (because the last 3 days occurred in Year 2). So the total accrual balance is $14,286 x 11 days.
Example Question #4 : Retirement Benefits
All of these costs except per capita claims are included in other benefits such as pensions.
Interest cost
Service cost
Prior service cost
Per capita claims
Per capita claims
Of the following costs, which is unique to postretirement health care benefits?
Example Question #5 : Retirement Benefits
Actuarial assumptions and the accumulated postretirement benefit obligation must be disclosed.
A
Neither
A & B
B
A & B
Which of the following facts about health care benefits should be disclosure? A) the assumed healthcare cost trend rate used to measure the expected cost of benefits covered by the plan B) The accumulated postretirement benefit obligation
Example Question #6 : Retirement Benefits
Where should the funded status of a defined benefit pension plan be reported?
Income statement
Notes to the financial statements
Statement of cash flows
Statement of financial position
Statement of financial position
The funded status of a company pension plan should be reported on the statement of financial position as an asset or liability depending on the status.
All CPA Financial Accounting and Reporting (FAR) Resources
