Chapter 20: Q10Q. (page 1161)
What is service cost, and what is the basis of its measurement?
Service cost is used to calculate the total pension expense during the accounting year. The total service cost is added to the pension expense.
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Manno Corporation has the following information available concerning its postretirement benefit plan for 2017. Service cost $40,000 Interest cost 47,400 Actual and expected return on plan assets 26,900 Compute Manno’s 2017 postretirement expense.
At the end of the current year, Kennedy Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)245,000. The amount of the vested benefits for the plan is \(225,000. Kennedy has an actuarial gain of \)8,300. What account and amount(s) related to its pension plan will be reported on the company’s statement of financial position? (a) Pension Liability and \(74,300. (b) Pension Liability and \)90,000. (c) Pension Asset and \(233,300. (d) Pension Asset and \)110,000.
What are the major differences between postretirement healthcare benefits and pension benefits?
Lahey Corp. has three defined benefit pension plans as follows. Pension Assets Projected Benefit (at Fair Value) Obligation Plan X \(600,000 \)500,000 Plan Y 900,000 720,000 Plan Z 550,000 700,000 How will Lahey report these multiple plans in its financial statements?
Many business organizations have been concerned with providing for the retirement of employees since the late 1800s. Increase in this concern resulted in the establishment of private pension plans in most large companies and in many medium- and small-sized ones. The substantial growth of these plans, both in numbers of employees covered and in amounts of retirement benefits, has increased the significance of pension costs in relation to the financial position, results of operations, and cash flows of many companies. In examining the costs of pension plans, a 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) Define a private pension plan. How does a contributory pension plan differ from a noncontributory plan?
(b) Differentiate between “accounting for the employer” and “accounting for the pension fund.”
(c) Explain the terms “funded” and “pension liability” as they relate to: (1) The pension fund. (2) The employer.
(d) (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.
(e) Distinguish among the following as they relate to pension plans. (1) Service cost. (2) Prior service costs. (3) Vested benefits.
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