Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Question
Chapter 19, Problem 1C
To determine
List the items of the defined benefit pension plan that are included in the financial reporting and explain its meaning, and also describe the manner in which it is calculated.
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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.
The company’s pension plan is managed by Castle Fund Managers, a leading provider of pension services. It is a defined contribution plan, where the employees’ contributions are matched by the employer. Each employee had to choose one of the following investment options for their individual plans:
a. Preferred Accumulator (PA): Short-term focus b. Balanced Accumulator (BA): Medium-term focus c. Select Accumulator (SA): Long-term focus
However, there has been some concern raised over how the pension fund is being managed. Some employees are upset that Castle Fund Managers uses a diversified asset allocation strategy for its investment. Required: Prepare a short report which explains: a. The importance of strategic asset allocation, b. Three (3) benefits of using this approach, c. Three (3) factors that could affect how assets are allocated.
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?
Chapter 19 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 19 - Prob. 1GICh. 19 - Prob. 2GICh. 19 - Prob. 3GICh. 19 - Prob. 4GICh. 19 - Prob. 5GICh. 19 - Prob. 6GICh. 19 - Prob. 7GICh. 19 - Prob. 8GICh. 19 - Prob. 9GICh. 19 - Prob. 10GI
Ch. 19 - Prob. 11GICh. 19 - Prob. 12GICh. 19 - Prob. 13GICh. 19 - Prob. 14GICh. 19 - Prob. 15GICh. 19 - Prob. 16GICh. 19 - Prob. 17GICh. 19 - Prob. 18GICh. 19 - Prob. 19GICh. 19 - Prob. 20GICh. 19 - Prob. 21GICh. 19 - Prob. 22GICh. 19 - Prob. 23GICh. 19 - The actuarial present value of all the benefits...Ch. 19 - Prob. 2MCCh. 19 - Prob. 3MCCh. 19 - Prob. 4MCCh. 19 - Prob. 5MCCh. 19 - Prob. 6MCCh. 19 - Which of the following is not a component of...Ch. 19 - Prob. 8MCCh. 19 - Prob. 9MCCh. 19 - Prob. 10MCCh. 19 - Prob. 1RECh. 19 - Prob. 2RECh. 19 - Pinecone Company has plan assets of 500,000 at the...Ch. 19 - Prob. 4RECh. 19 - Prob. 5RECh. 19 - Prob. 6RECh. 19 - Prob. 7RECh. 19 - Prob. 8RECh. 19 - Given the following information for Tyler Companys...Ch. 19 - At the beginning of Year 1, Cactus Company has...Ch. 19 - Prob. 11RECh. 19 - Prob. 1ECh. 19 - Prob. 2ECh. 19 - Prob. 3ECh. 19 - Prob. 4ECh. 19 - Prob. 5ECh. 19 - Prob. 6ECh. 19 - Prob. 7ECh. 19 - Prob. 8ECh. 19 - Prob. 9ECh. 19 - Prob. 10ECh. 19 - Prob. 11ECh. 19 - Prob. 12ECh. 19 - Prob. 13ECh. 19 - Refer to the information provided in E19-13....Ch. 19 - Prob. 15ECh. 19 - Prob. 16ECh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Prob. 5PCh. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 9PCh. 19 - Prob. 10PCh. 19 - Prob. 11PCh. 19 - Prob. 12PCh. 19 - Prob. 1CCh. 19 - Prob. 2CCh. 19 - Prob. 3CCh. 19 - Prob. 4CCh. 19 - Prob. 5CCh. 19 - Prob. 6CCh. 19 - Prob. 7CCh. 19 - Prob. 9C
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Similar questions
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?
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In a defined contribution plan, a formula is used that:
Ensures that pension expense and the cash funding will be different
Requires an employer to contribute a certain sum each period based on the formula
Defines the benefits that the employee will receive at the time of retirement
Ensures that the employer is at risk to make sure funds are available at retirement
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The accounting staff of Wildhorse Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not readable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2021.
(a)Determine the missing amounts in the 2021 pension worksheet, indicating whether the amounts are debits or credits.
Annual Pension Expense
debit/
credit
Cash
debit/
credit
OCI - Prior Service Cost
debit/
credit
OCI - Gain/Loss
debit/
credit
pension asset/liability
debit/credit
Projected benefit obligation
debit/credit
Plan Assets
debit/credit
Balance Jan 1, 2021
1,190
Cr.
4,120
2,930
service cost
$
570
interest cost
$
326
actual return
$
422
unexpected gain
157
$
amortization of psc
$
61
contributions
1,190
1,190…
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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.
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Monat Company has grown rapidly since its founding in 2004. To instill loyalty in its employees, Monat is contemplating establishment of a defined benefit plan. Monat knows that lenders and potential investors will pay close attention to the impact of the pension plan on the company’s financial statements, particularly any gains or losses that develop in the plan. Monat has asked you to conduct some research on the accounting for gains and losses in a defined benefit plan.InstructionsIf your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.(a) Briefly describe how pension gains and losses are accounted for.(b) Explain the rationale behind the accounting method described in part (a).(c) What is the related pension asset or liability that will show up on the balance sheet? When will each of these situations occur?
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Discuss the role that pension funds play in company pension plans. What benefits accrue to companies who elect to use pension funds? How does the use of a pension fund change the accounting that must be done with respect to employee pension amounts?
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The City of Ronchester has a defined benefit pension plan for its firefighters. How is the amount of pension expense determined that should be recognized in the current year?
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What benefits accrue to companies who elect to use pension funds? How does the use of a pension fund change the accounting that must be done with respect to employee pension amounts?
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(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?
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Bill Haley is learning about pension accounting. He is convinced that in years when companies record liability gains and losses, total comprehensive income will not be affected. Is Bill correct? Explain.
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In accounting for a defined-benefit pension plan
__the expense recognized each period is equal to the cash contribution.
___the liability is determined based upon known variables that reflect future salary levels promised to employees.
__the employer's responsibility is simply to make a contribution each year based on the formula established in the plan.
__an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised.
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