Carlson 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 net pension cost recognized for a period are service costs, interest cost, and expected return on plan assets.
1. What two accounting issues result from the nature of the defined pension benefit pension plan? Why do these issues arise?
2. Explain how Carson should determine the service cost component of the net pension cost.
3. Explain how Carson should determine the interest cost component of the net pension cost.
4. Explain how Carson should determine the expected return on plan assets component of the net pension cost
The question you posted has many implications. I have also attached a word document that gives a number of ideas about a defined pension benefit pension plan from an accounting text which I have referenced.
Also there is a broad agreement among accountants that companies should account for pension cost on the accrual basis. The profession recognizes that accounting for pension plans requires measurement of the cost and its' identification with the appropriate time periods. The determination of the pension cost, however, is extremely complicated.
1. Under the defined pension benefit pension plan employers are responsible for the payments regardless if the trust suffers a shortage. Also, employers are at risk because they must contribute enough to meet the current and future cost of the benefit plan.
2.) Service cost is the expense caused by the increase in pension benefits payable ...
This solution contains a detailed explanation of a company sponsored single-employer defined benefit pension plan. The attached word document outlines the specific nature of a defined benefit plan. 571 words.