Carson Company sponsors a single-employer defined benefit pension plan. The plan provides that pension benefits are determined by age, years of service, and compensation. Among the components that should be included in the calculation, net pension cost is service cost, the interest cost, and actual return on plan assets. What two accounting problems result from the nature of the defined benefit pension plan? Why do these problems arise?

Carson Company sponsors a single-employer defined benefit pension plan. The plan provides that pension benefits are determined by age, years of service, and compensation. Among the components that should be included in the calculation, net pension cost is service cost, the interest cost, and actual return on plan assets. What two accounting problems result from the nature of the defined benefit pension plan? Why do these problems arise?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter12: Liabilities: Off-balance-sheet Financing, Retirement Benefits, And Income Taxes

Section: Chapter Questions

Problem 8Q

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Which of the following is not a component of pension expense? a. amount funded b. service cost c. expected return on plan assets d. interest cost
Carson Company sponsors a single-employer defined benefit pension plan. The plan provides that pension benefits are determined by age, years of service, and compensation. Among the components that should be included in the calculation net pension cost are service cost, interest cost, and actual return on plan assets. Required: A. What two accounting problems result from the nature of the defined benefit pension plan? Why do those problems arise? B. How should Carson determine service cost component of the net pension cost? C. How should Carson determine the interest cost component of the net pension cost? D. How should Carson determine the actual return on plan assets component of the net pension cost?
The two main types of pension plans are defined benefit plans and defined contribution plans. Explain the difference between the two. How does the accounting for each differ? With defined benefit plans, there are several levels of benefit obligations for the company. List these and describe what each represents. Which does GAAP require with recognition and why?
The Employee Retirement Income Security Act (ERISA) requires that companies fund defined-benefit plans, but no such requirement exists for other postretirement benefits such as health insurance. Considering the characteristics of retirement benefits as compared to the characteristics of other postretirement benefits, what impact does this have on a company's financial statements?
Which of the following is not a characteristic of a defined-contribution pension plan? The employer's contribution each period is fixed. If the employer does not make contribution in full, then it reports a pension liability. If the employer contributes more than the required amount, then it reports a pension asset. An appropriate funding pattern must be established to ensure that the promised benefits at employees’ retirement will be met. The benefit of gain or the risk of loss from the assets contributed to the pension fund are borne by the employee.
A pension plan is underfunded when the employer’s obligation (PBO) exceeds the resources available to satisfy that obligation (plan assets) and overfunded when the opposite is the case. How is this funded status reported on the balance sheet if plan assets exceed the PBO? If the PBO exceeds plan assets?
Please answer the following questions about defined benefit pension plans: Companies with defined benefit pension plans must recognize pension expenses each period. What are the five components of pension expense? Briefly describe each component. How does each component of pension expense affect pension expense during the period (increase, decrease, or uncertain)? What is the difference between the accumulated pension obligation and the projected pension obligation? What determines whether a pension plan is underfunded or overfunded?
Which of the following statements are disadvantages for the employer-sponsor of a cash balance pension plan? 1)A certain level of plan benefit is guaranteed by the PBGC. 2)The employer bears the investment risk in the plan. 3)Cash balance pension plans are less expensive for the employer than a traditional defined benefit pension plan. 4)Retirement benefits may be inadequate for older plan entrants Answer list below a) 2, 4 b) 1, 2 c) 1, 3 d) 3, 4
1. Which of the following statements typifies defined contribution plans? Investment risk is borne by the corporation sponsoring the plan. O Retirement benefit is defined by a pension formula O The plans are more complex than defined benefit plans. O The employer's obligation is satisfied by making the periodic contribution to the plan.
(Basic Terminology) In examining the costs of pension plans, Helen Kaufman, CPA, encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans.Instructions(a) (1) Discuss the theoretical justification for accrual recognition of pension costs.(2) Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs.(b) Explain the following terms as they apply to accounting for pension plans.(1) Market-related asset value.(2) Projected benefit obligation.(3) Corridor approach.(c) What information should be disclosed about a company’s pension plans in its financial statements and its notes?
A major difference between defined benefit pension plans and defined contribution pension plans is that A.) Accounting for defined benefit plans is much simpler than accounting for defined contribution plans. B.) In a defined contribution plan, the risk of loss is borne primarily by the employee C.) Employees generally are required to contribute to defined contribution plans but not to defined benefit plans. D.) There is no major difference between the two kinds of pension plans.
A company currently offers it’s employees a defined benefit pension plan, but is looking into changing to a defined contribution plan for new employees, the company reports under IFRS. Within the notes, there is reference to the following: in relation to the pension extract (a)• Net pension liabilities/asset • Employee service cost • Net interest expense/income• Remeasurements Explain what the main features are of a defined benefit and defined contribution pension plan and how they are included in the financial statements. With reference to the pension notes, describe each item and how any movement in those items would be recorded in the financial statements.