Textbook Problem

Carson Company sponsors a single-employer IRS qualified 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 net pension cost recognized for a period are service cost, interest cost, and expected return on plan assets.

Required:

1. 1. What is a qualified pension plan? How does it differ from a nonqualified plan?
2. 2. What types of assumptions must a company make when accounting for a defined benefit pension plan? Are assumptions also needed when accounting for a defined contribution? Explain.
3. 3. Explain how Carson should determine the service cost component of the net pension cost.
4. 4. Explain how Carson should determine the interest cost component of the net pension cost.
5. 5. Explain how Carson should determine the expected return on plan assets component of the net pension cost.