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Chapter 20: Question 24Q (page 1161)

Determine the meaning of the following terms. (a) Contributory plan. (b) Vested benefits. (c) Retroactive benefits. (d) Years-of-service method.

Short Answer

Expert verified

The accrued benefitis the type of benefit an employeeearns by working in an organizationand taking adefined pension planto secure its lifeafter retirement.

Step by step solution

01

(a) Contributory plan:

A contributory plan is the type of pension plan where the employee of an organization contributes a part of a section of the total pension cost. It leads to an increase in the amount of pension benefits for an employee in the future.

02

(b) Vested benefits:

Vested benefits are those benefits an employee receives that depict the actuarial present value of the pension benefit an organization is obligated to pay in the future.

03

(c) Retroactive benefits:

Retroactive benefits are those initiated under the plan amendment of an organization procured using the pension benefit formula.

04

(d) Years-of-service method:

The years-of-service method is the type of pension plan method. The total pension benefit is calculated by combining the average service life of each employee in an organization up to its retirement.

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Most popular questions from this chapter

Differentiate between a defined contribution pension plan and a defined benefit pension plan. Explain how the employer’s obligation differs between the two types of plans.

Name three approaches to measuring benefit obligations from a pension plan and explain how they differ.

Using the information in E20-13 about Erickson Company’s defined benefit pension plan, prepare a 2017 pension worksheet with supplementary schedules of computations. Prepare the journal entries at December 31, 2017, to record pension expense and related pension transactions. Also, indicate the pension amounts reported in the balance sheet.

Hollenbeck Foods Inc. sponsors a postretirement medical and dental benefit plan for its employees. The following balances relate to this plan on January 1, 2017. Plan assets \(200,000 Expected postretirement benefit obligation 820,000 Accumulated postretirement benefit obligation 200,000 No prior service costs or OCI balances exist. As a result of the plan’s operation during 2017, the following additional data are provided by the actuary. Service cost is \)70,000 Discount rate is 10% Contributions to plan are \(65,000 Expected return on plan assets is \)10,000 Actual return on plan assets is \(15,000 Benefi ts paid to employees are \)44,000 Average remaining service to full eligibility: 20 years Instructions (a) Using the preceding data, compute the net periodic postretirement benefit cost for 2017 by preparing a worksheet that shows the journal entry for postretirement expense and the year-end balances in the related postretirement benefit memo accounts. (Assume that contributions and benefits are paid at the end of the year.) (b) Prepare any journal entries related to the postretirement plan for 2017 and indicate the postretirement amounts reported in the financial statements for 2017.

Henning Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2017 in which no benefits were paid. 1. The actuarial present value of future benefits earned by employees for services rendered in 2017 amounted to \(56,000. 2. The company’s funding policy requires a contribution to the pension trustee amounting to \)145,000 for 2017. 3. As of January 1, 2017, the company had a projected benefit obligation of \(900,000, an accumulated benefit obligation of \)800,000, and a debit balance of \(400,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to \)600,000 at the beginning of the year. The actual and expected return on plan assets was \(54,000. The settlement rate was 9%. No gains or losses occurred in 2017 and no benefits were paid. 4. Amortization of prior service cost was \)50,000 in 2017. Amortization of net gain or loss was not required in 2017. Instructions (a) Determine the amounts of the components of pension expense that should be recognized by the company in 2017. (b) Prepare the journal entry or entries to record pension expense and the employer’s contribution to the pension trustee in 2017. (c) Indicate the amounts that would be reported on the income statement and the balance sheet for the year 2017.
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