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Chapter 20: Q8Q. (page 1161)

Explain how cash-basis accounting for pension plans differs from accrual-basis accounting for pension plans. Why is cash-basis accounting generally considered unacceptable for pension plan accounting?

Short Answer

Expert verified

Cash-basis of accounting is an accounting principle where the transactions in the form of cashare recorded according to theirdate of occurrence.

Step by step solution

01

Difference between cash-basis of accounting and the accrual basis of accounting for pension plans

Cash-basis accounting for pension plans

Accrual-basis accounting for pension plans

This type of accounting practice considers the amount of cash invested by the employer to the organization's pension fund during an accounting year. It is realized as an expense recognition.

This type of accounting concept recognizes the pension cost of an organization when the organization incurs the actual cost.

02

Cash-basis accounting generally considered unacceptable for pension plan accounting

Since the amount of pension fund contributed by the employer is not related to the benefits derived from the pension plan of an organization. The cash-basis of accounting considers the amount of cash invested as a pension cost.

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Most popular questions from this chapter

Kreter Co. provides the following information about its postretirement benefit plan for the year 2017. Service cost $ 45,000 Contribution to the plan 10,000 Actual and expected return on plan assets 11,000 Benefits paid 20,000 Plan assets at January 1, 2017 110,000 Accumulated postretirement benefit obligation at January 1, 2017 330,000 Discount rate 8% Instructions Compute the postretirement benefit expense for 2017

What is the difference between the APBO and the EPBO? What are the components of post-retirement expense?

Question: What is net interest? Identify the elements of net interest and explain how they are computed.

For 2017, Carson Majors Inc. had pension expense of \(77 million and contributed \)55 million to the pension fund. Which of the following is the journal entry that Carson Majors would make to record pension expense and funding? (a) Pension Expense 77,000,000 Pension Asset/Liability 22,000,000 Cash 55,000,000 (b) Pension Expense 77,000,000 Pension Asset/Liability 22,000,000 Cash 99,000,000 (c) Pension Expense 55,000,000 Pension Asset/Liability 22,000,000 Cash 77,000,000 (d) Pension Expense 22,000,000 Pension Asset/Liability 55,000,000 Cash 77,000,000

The following data relate to the operation of Kramer Co.’s pension plan in 2018. The pension worksheet for 2017 is provided in P20-10. Service cost $59,000 Actual return on plan assets 32,000 Amortization of prior service cost 28,000 Annual contributions 51,000 Benefits paid retirees 27,000 Average service life of all employees 25 years For 2018, Kramer will use the same assumptions as 2017 for the expected rate of returns on plan assets. The settlement rate for 2018 is 10%. Instructions (a) Prepare a pension worksheet for 2018 and accompanying computations and amortization of the loss, if any, in 2018 using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31. (c) Indicate the pension amounts reported in the financial statements.
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