1 Which of the following describes defined benefit pension plans? Answer: a The investment risk is borne by the employee. b The plans are simple and easy to construct. c The investment risk is borne by the employer. d Retirement benefits depend on the individual's account balance. . Question 2 The portion of the obligation that plan participants are entitled to receive regardless of their continued employment is called the: Answer a Vested benefit obligation. b Retiree benefit obligation. c Actual benefit obligation. d True benefit obligation. . Question 3 The PBO is increased by: Answer A. An increase in the average life expectancy of employees. B. Amortization of prior service cost. C. An increase in the actuary's assumed discount rate. D. A return on plan assets that is lower than expected. . Question 4 Interest cost will: Answer a Increase the PBO and increase pension expense. b Increase pension expense and reduce plan assets. c Increase the PBO and reduce plan assets. d Increase pension expense and reduce the return on plan assets. . Question 5 A company's defined benefit pension plan had a PBO of $265,000 on January 1, 2009. During 2009, pension benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service cost for 2009 was $80,000. Plan assets (fair value) increased during the year by $45,000. The amount of the PBO at December 31, 2009, was: Answer a $225,000. b $305,000. c $331,500. d None of these is correct. . Question 6 Louie Company has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $8,000. The discount rate applied by the actuary was 8%. What was the service cost for the year? Answer a $ 2,000. b $12,000. c $18,000. d $92,000. . Question 7 An underfunded pension plan means that the: Answer a PBO is less than plan assets. b PBO exceeds plan assets. c ABO is less than plan assets. d ABO exceeds plan assets. . Question 8 The pension expense includes periodic changes that occur: Answer a In the PBO. b In the PBO and the plan assets. c In the plan assets. d In the PBO and the ABO. . Question 9 Assume that at the beginning of the current year, a company has a net gain