1、20-1 CHAPTER 20 Accounting for Pensions and Postretirement Benefits ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises ProblemsConcepts for Analysis1. Basic definitions and concepts related to pension plans. 1, 2, 3, 4, 5, 6, 7, 8, 9, 13, 14, 24 16 1, 2, 3, 4, 5, 7
2、2. Worksheet preparation. 3 3, 4, 7, 10, 15 1, 2, 7, 8, 93. Income statement recognition, computation of pension expense. 10, 11, 12, 14, 17, 18 1, 4 1, 2, 3, 6, 12, 13, 14, 15, 16, 17, 20, 21 1, 2, 3, 4, 5, 6, 9 4, 54. Balance sheet recognition, computation of pension expense. 16, 20, 21, 22, 23 2
3、3, 9, 11, 13, 14, 15, 17, 18, 19 1, 2, 3, 4, 5, 6, 7, 8, 9 2, 5, 75. Minimum liability computation. 20, 22 8, 9, 10 11, 12, 13, 14, 16, 17, 18, 19 3, 4, 5, 6, 7, 8 2, 4, 56. Corridor calculation. 19 7 8, 14, 20, 21 2, 3, 5, 6, 7, 8, 9 3, 4, 5, 67. Reconciliation schedule. 25 6 3, 9, 10, 14, 15, 19 1
4、, 2, 3, 6, 8, 98. Prior service cost. 13, 14, 21, 23 5, 8, 9, 10 1, 2, 3, 5, 9, 11, 12, 13, 14, 15, 18, 19, 21 1, 2, 3, 4, 5, 6, 7, 8, 9 1, 49. Unrecognized net gain or loss. 15 7 8, 9, 14, 15, 19, 20, 21 1, 2, 3, 5, 6, 7, 8, 9 4, 5, 610. Disclosure issues. 25 9, 12, 13 3, 4 *11. Special Issues. 26
5、*12. Postretirement benefits. 27, 28, 29, 30 11, 12 22, 23, 24, 25 10 *This material is dealt with in an Appendix to the chapter. School of Management,HUST20-2 ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning ObjectivesBrief Exercises Exercises Problems 1. Distinguish between account
6、ing for the employers pension plan and accounting for the pension fund. 2. Identify types of pension plans and their characteristics. 3. Explain alternative measures for valuing the pension obligation. 4. List the components of pension expense. 1, 2, 4 1, 2, 6, 12, 13, 14, 16, 17 5. Use a worksheet
7、for employers pension plan entries. 3 3, 4, 7, 10, 12, 15 1, 2, 4, 7, 8, 9 6. Describe the amortization of unrecognized prior service costs. 5 1, 2, 5, 7, 13, 14, 17, 19 1, 2, 3, 4, 6, 7, 8, 9 7. Explain the accounting procedure for recognizing unexpected gains and losses. 13, 14, 19 1, 2, 3, 4, 5,
8、6, 7, 8, 9 8. Explain the corridor approach to amortizing unrecognized gains and losses. 7 8, 13, 14, 19, 20, 21 3, 4, 5, 6, 7, 8 9. Explain the recognition of a minimum liability. 8, 9, 10 11, 12, 13, 14, 16, 17, 18, 19 3, 4, 5, 7, 8, 9 10. Describe the requirements for reporting pension plans in f
9、inancial statements. 6 9, 10, 12, 13, 14, 17, 18, 19 1, 2, 3, 4, 8 *11. Identify the differences between pensions and postretirement healthcare benefits. 11, 12 22, 23, 24, 25 10 *12. Contrast accounting for pensions to accounting for other postretirement benefits. 11, 12 22, 23, 24, 25 10 School of
10、 Management,HUST20-3 ASSIGNMENT CHARACTERISTICS TABLE Item Description Level of Difficulty Time (minutes) E20-1 Pension expense, journal entries. Simple 510 E20-2 Computation of pension expense. Simple 1015 E20-3 Preparation of pension worksheet with reconciliation. Moderate 1525 E20-4 Basic pension
11、 worksheet. Simple 1015 E20-5 Application of years-of-service method. Moderate 1525 E20-6 Computation of actual return. Simple 1015 E20-7 Basic pension worksheet. Moderate 1525 E20-8 Application of the corridor approach. Moderate 2025 E20-9 Disclosures: Pension expense and reconciliation schedule. M
12、oderate 2535 E20-10 Pension worksheet with reconciliation schedule. Moderate 2025 E20-11 Minimum liability computation, entry. Moderate 1015 E20-12 Pension expense, journal entries, statement presentation, minimum liability. Moderate 2030 E20-13 Pension expense, journal entries, minimum liability, s
13、tatement presentation. Moderate 2030 E20-14 Computation of actual return, gains and losses, corridor test, prior service cost, minimum liability, pension expense, and reconciliation. Complex 3545 E20-15 Worksheet for E20-14. Complex 4050 E20-16 Pension expense, minimum liability, journal entries. Mo
14、derate 1520 E20-17 Pension expense, minimum liability, statement presentation. Moderate 3045 E20-18 Minimum liability, journal entries, balance sheet items. Moderate 2025 E20-19 Reconciliation schedule, minimum liability, and unrecognized loss. Moderate 2025 E20-20 Amortization of unrecognized net g
15、ain or loss (corridor approach), pension expense computation. Moderate 2535 E20-21 Amortization of unrecognized net gain or loss (corridor approach). Moderate 3040 *E20-22 Postretirement benefit expense computation. Simple 1012 *E20-23 Postretirement benefit expense computation. Simple 1012 *E20-24
16、Postretirement benefit worksheet. Moderate 1520 *E20-25 Postretirement benefit reconciliation schedule. Simple 1015 P20-1 Two-year worksheet and reconciliation schedule. Moderate 4050 P20-2 Three-year worksheet, journal entries, and reconciliation schedules. Complex 4555 P20-3 Pension expense, journ
17、al entries, minimum pension liability, amortization of unrecognized loss, reconciliation schedule. Complex 4050 P20-4 Pension expense, minimum liability, journal entries for two years. Moderate 3040 P20-5 Computation of pension expense, amortization of unrecognized net gain or loss (corridor approac
18、h), journal entries for three years, and minimum pension liability computation. Complex 4555 P20-6 Computation of unrecognized prior service cost amortization, pension expense, journal entries, net gain or loss, and reconciliation schedule. Complex 4560 P20-7 Pension worksheet, minimum liability. Mo
19、derate 3545 School of Management,HUST20-4 ASSIGNMENT CHARACTERISTICS TABLE (Continued) Item Description Level of Difficulty Time (minutes) P20-8 Comprehensive 2-year worksheet. Complex 4560 P20-9 Comprehensive 2-year worksheet. Moderate 4045 *P20-10 Postretirement benefit worksheet with reconciliati
20、on. Moderate 3035 CA20-1 Pension terminology and theory. Moderate 3035 CA20-2 Pension terminology. Moderate 2530 CA20-3 Basic terminology. Simple 2025 CA20-4 Major pension concepts. Moderate 3035 CA20-5 Implications of FASB Statement No. 87. Complex 5060 CA20-6 Unrecognized gains and losses, corrido
21、r amortization. Moderate 3040 CA20-7 Nonvested employeesan ethical dilemma Moderate 2030 School of Management,HUST20-5 ANSWERS TO QUESTIONS *1. A private pension plan is an arrangement whereby a company undertakes to provide its retired employees with benefits that can be determined or estimated in
22、advance from the provisions of a document or from the companys practices. In a contributory pension plan the employees bear part of the cost of the stated benefits whereas in a noncontributory plan the employer bears the entire cost. *2. A defined contribution plan specifies the employers contributi
23、on to the plan usually based on a formula, which may consider such factors as age, length of service, employers profit, or compensation levels. A defined benefit plan specifies a determinable pension benefit that the employee will receive at a time in the future. The employer must determine the amou
24、nt that should be contributed now to provide for the future promised benefits. In a defined contribution plan, the employers obligation is simply to make a contribution to the plan each year based on the plan formula. The benefit of gain or risk of loss from assets con- tributed to the plan is borne
25、 by the employee. In a defined benefit plan, the employers obli- gation is to make sufficient contributions each year to provide for the promised future benefits. Therefore, the employer is at risk to the extent that contributions will not be adequate to meet the promised benefits. *3. The employer
26、is the organization sponsoring the pension plan. The employer incurs the costs and makes contributions to the pension fund. Accounting for the employer involves: (1) allocating the cost of the pension plan to the proper accounting periods, (2) measuring the amount of pension obligation resulting fro
27、m the plan, and (3) disclosing the status and effects of the plan in the financial statements. The pension fund or plan is the entity which receives the contributions from the employer, adminis- ters the pension assets, and makes the benefit payments to the pension recipients. Accounting for the fun
28、d involves identifying receipts as contributions from the employer sponsor, income from fund investments, and computing the amounts due to individual pension recipients. Accounting for the pension costs and obligations of the employer is the topic of this chapter; accounting for the pension fund is
29、not. *4. When the term “fund” is used as a noun, it refers to assets accumulated in the hands of a funding agency for the purpose of meeting pension benefits when they become due. When the term “fund” is used as a verb, it means to pay over to a funding agency (as to fund future pension benefits or
30、to fund pension cost). *5. An actuarys role is to ensure that the company has established an appropriate funding pattern to meet its pension obligations, to make predictions and assumptions about future events and conditions that affect pension costs, and to assist the accountant in measuring facets
31、 of the pen- sion plan that must be reported (costs, liabilities and assets). In order to determine the companys pension obligation, the actuary must first determine the expected benefits that will be paid in the future. To accomplish this requires the actuary to make actuarial assumptions, which ar
32、e esti- mates of the occurrence of future events affecting pension costs, such as mortality, withdrawals, disablement and retirement, changes in compensation, and changes in discount rates to reflect the time value of money. *6. In measuring the amount of pension benefits under a defined benefit pen
33、sion plan, an actuary must consider such factors as mortality rates, employee turnover, interest and earnings rates, early retirement frequency, and future salaries. School of Management,HUST20-6 Questions Chapter 20 (Continued) *7. One measure of the pension obligation is the vested benefit obligat
34、ion. This measure uses only current salary levels and includes only vested benefits; that is, benefits the employee is already entitled to receive even if the employee renders no additional services under the plan. A companys accumulated benefit obligation is the actuarial present value of benefits
35、attributed by the pension benefit formula to service before a specified date and is based on employee service and compensation prior to that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation levels. The
36、projected benefit obligation is based on vested and nonvested services using future salaries. *8. Noncapitalization in pension accounting means no asset or liability is recorded and reported unless the amount funded is different from the amount expensed by the employer. The real pension obligation,
37、the pension plan assets, prior service costs (retroactive benefits), and unamortized gains and losses, are not recognized. The capitalization approach supports the economic substance of the pension plan as opposed to its legal form and records and reports all assets and liabilities of the plan as th
38、ey relate to the employer. The employer is the ultimate source of funds to meet the benefit obligations. The FASB compromised and chose a method of pension accounting that leans toward capitali- zation but does not require recognition of the pension plan assets and liabilities, only disclosure of al
39、l such items. *9. Cash-basis accounting recognizes pension cost as being equal to the amount of cash paid by the employer to the pension fund in any period; pension funding serves as the basis for expense recognition under the cash basis. Accrual-basis accounting recognizes pension cost as it is inc
40、urred and attempts to recognize pension cost in the same period in which the company receives benefits from the services of its employees. Not infrequently, the amount which an employer must fund for pension purposes during a particular period is unrelated to the economic benefits derived from the p
41、ension plan in that period. Cash- basis accounting recognizes the amount funded as periodic pension cost and the amount funded may be discretionary and vary widely from year to year. Funding is a matter of financial management, based on working capital availability, tax considerations, and other mat
42、ters unrelated to accounting considerations. *10. The five components of pension expense are: (1) Service cost componentthe actuarial present value of benefits attributed by the pension benefit formula to employee service during the period. (2) Interest cost componentthe increase in the projected be
43、nefit obligation as a result of the passage of time. (3) Actual return on plan assets componentthe reduction in pension cost for actual investment income from plan assets and the change in the market value of plan assets. (4) Amortization of prior service costthe cost of retroactive benefits granted
44、 in a plan amendment (including initiation of a plan). (5) Gains and lossesa change in the value of either the projected benefit obligation or the plan assets resulting from experience different from that assumed or expected or from a change in an actuarial assumption. Note to instructor: Regarding
45、return on plan assets, the final component is expected rate of return. We are assuming above that an adjustment is made to the actual return to determine expected return. School of Management,HUST20-7 Questions Chapter 20 (Continued) *11. The service cost component of net periodic pension expense is
46、 determined as the actuarial present value of benefits attributed by the pension benefit formula to employee service during the period. The plans benefit formula provides a measure of how much benefit is earned and, therefore, how much cost is incurred in each individual period. The FASB concluded t
47、hat future compensation levels had to be considered in measuring the present obligation and periodic pension expense if the plan benefit formula incorporated them. *12. The interest component is the interest for the period on the projected benefit obligation outstanding during the period. The assume
48、d discount rate should reflect the rates at which pension benefits could be effectively settled (settlement rates). Other rates of return on high-quality fixed- income investments might also be employed. *13. Service cost is the actuarial present value of benefits attributed by the pension benefit f
49、ormula to employee service during the period. Actuaries compute service cost at the present value of the new benefits earned by employees during the year. Prior service cost is the cost of retroactive benefits granted in a plan amendment or initiation of a pension plan. The cost of the retroactive benefits is the increase in the projected benefit obligation at the date of the amendment. *14. When a defined benefit plan is either initiated or amended, credit is often given to employees for years of service provided before the
