Chapter 20: Accounting for Pensions and Other Post-retirement Benefits Flashcards
What are 3 types of pension plans?
- Contributory - employee pays
- Noncontributory - employer pays
- Qualified pension plans - tax benefits
What does overfunded or underfunded status of a pension plan mean?
Fair value of plan assets
minus
Projected benefit obligation
What are the components of pension expense?
What are the effects of these components on pension expense?
- Interest on liability (increase)
- Expected return on assets (decrease)
- Amortization of prior service costs (increase)
- Service costs (increase)
- Amortization of gains (decrease)/losses (increases)
How is the actual return on plan assets computed?
How is pension expense computed?
How is projected benefit obligation computed?
How is plan assets computed?
How should prior service costs be allocated?
Straight-line amortization over average remaining service life of the employees.
Where are prior service costs and gains/losses on plan assets/pbo recorded?
Other comprehensive income on the equity statement
What is the corridor approach?
Used to amortize the accumulated net gain or loss balance in accumulated other income when the balance gets too large.
What is the criteria for using the corridor approach?
- Calculate 10% of the larger of PBO or market value of plan assets
- Amortize any gain or loss over this amount
How do you compute the balance of Accumulated other comprehensive income (G/L)?
- Determine the beginning balance for Accumulated OCI (G/L)
- Make adjustments for gains and losses in the current year
- Add loss if AOCI balance is a loss
- Subtract gain if AOCI balance is a loss
- Add gain if AOCI balance is a gain
- Subtract loss if AOCI balance is a gain
- Reduce AOCI balance by amortization of gain or loss
