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Chapter 20: Question 27Q (page 1161)

Why didn’t the FASB cover both types of post-retirement benefits—pensions and healthcare—in the earlier pension accounting rules?

Short Answer

Expert verified

FASB or Financial Accounting Standards Board,incorporated in1973,is an institution that was establishedto monitor the various accounting rulesas defined under theGAAP.

Step by step solution

01

Introduction

The FASB did not cover both types of post-retirement benefits since they differ in various ways. These plans have a different feature that makes them apart from one another.

02

Reasons due to which both pensions and healthcare were not included under the pension accounting rules:

1. Funding: The pension plans of an organization are funded or sponsored by the employer, whereas the employer does not fund healthcare.

2. Benefit:The pension benefits are well-defined under each employee's pension plans; on the other hand, the healthcare benefits vary with the amount.

3. Predictability:The pension plan components are predictable in nature, whereas the healthcare plans are non-predictable because they depend on market conditions.

4. Beneficiary: The beneficiary under the pension plan should be a retired employee, and in the healthcare plan, the beneficiary can appoint a nominee on behalf of the insured person.

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Most popular questions from this chapter

At January 1, 2017, Wembley Company had plan assets of \(250,000 and a defined benefit obligation of the same amount. During 2017, service cost was \)27,500, the discount rate was 10%, actual return on plan assets was \(25,000, contributions were \)20,000, and benefits paid were \(17,500. Based on this information, what would be the defined benefit obligation for Wembley Company at December 31, 2017? (a) \)277,500. (c) \(27,500. (b) \)285,000. (d) $302,500.

In computing the interest component of pension expense, what interest rates may be used?

What are “liability gains and losses,” and how are they accounted for?

Mancuso Corporation amended its pension plan on January 1, 2017, and granted $160,000 of prior service costs to its employees. The employees are expected to provide 2,000 service years in the future, with 350 service years in 2017. Compute prior service cost amortization for 2017.

What are postretirement benefits other than pensions?
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