The Major Difference Between Accounting for Pensions and the Accounting

question 67

Multiple Choice

The major difference between accounting for pensions and the accounting for other postretirement benefits is that firms:

• A) do not need to report an excess of the accumulated benefits obligations over assets in a postretirement benefits fund as a liability on the balance sheet.
• B) do not need to disclose any estimates used in calculating projected benefits.
• C) postretirement benefits are normally not material for most companies and do not need to be disclosed.
• D) do not need to set aside funds for future postretirement benefits as they do for pension benefits.

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Definitions:

Premium Bond

A bond that is trading above its par value in the financial markets.

Default Risk Premium

The additional yield that an investor demands for holding a bond with default risk over a similar risk-free security.

Nominal Interest Rate

The rate of interest before adjustments for inflation.

Bond Yield

The return an investor realizes on a bond, calculated by dividing the annual interest payments by the bond's current market price.