Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 20: Q20-25Q (page 1161)

A headline in the Wall Street Journal stated, “Firms Increasingly Tap Their Pension Funds to Use Excess Assets.” What is the accounting issue related to the use of these “excess assets” through plan terminations?

Short Answer

Expert verified

Answer

When pension plans revert to companies, such terminations are considered gains only when a major issue is related to the use of “excess assets” through plan terminations.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Accounting Issues

Accounting issues are obstacles and hurdles that come in the way ofaccounting professionals.Such issues prevent the accountants from performing their roles properly, which leads to inappropriate accounting records.

02

Issue related to the excess assets

The major issue related to excess assets terminations is that a company may recognize it as a gain when such pension plan assets revert to the company.

Another complexity associated with this issue is that when an old plan is eliminated, companies start a new plan. At the same time, some companies believe that theassociated substance does not change, rater there is only a change in the form.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Shin Corporation had a projected benefit obligation of \(3,100,000 and plan assets of \)3,300,000 at January 1, 2017. Shin also had a net actuarial loss of $465,000 in accumulated OCI at January 1, 2017. The average remaining service period of Shin’s employees is 7.5 years. Compute Shin’s minimum amortization of the actuarial loss.

Question: Kramer Co. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2017.

Instructions (a) Determine the missing amounts in the 2017 pension worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2017 pension expense for Kramer Co. (c) Determine the following for Kramer for 2017: (1) settlement rate used to measure the interest on the liability and (2) expected return on plan assets.

Question: The following defined pension data of Doreen Corp. apply to the year 2017.

Defined benefit obligation, 1/1/17 (before amendment) $560,000

Plan assets, 1/1/17 546,200

Pension asset/liability 13,800 Cr.

On January 1, 2017, Doreen Corp., through plan amendment,

grants past service benefits having a present value of 120,000

Discount rate 9%

Service cost 58,000

Contributions (funding) 65,000

Actual return on plan assets 49,158

Benefits paid to retirees 40,000

Instructions

For 2017, prepare a pension worksheet for Doreen Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.

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.

Norton Co. had the following amounts related to its pension plan in 2017. Actuarial liability loss for 2017 \(28,000 Unexpected asset gain for 2017 18,000 Accumulated other comprehensive income (G/L) (beginning balance) 7,000 Cr. Determine for 2017 (a) Norton’s other comprehensive income (loss) and (b) comprehensive income. Net income for 2017 is \)26,000; no amortization of gain or loss is necessary in 2017.
See all solutions

Recommended explanations on Business Studies Textbooks

Corporate Finance

Read Explanation

Managerial Economics

Read Explanation

Human Resources

Read Explanation

Nature of Business

Read Explanation

Organizational Behavior

Read Explanation

Strategic Direction

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free