Answer each topic seperately
1. Pension Accounting
Many business organizations have been concerned with providing for the retirement of employees since the late 1800s. During recent decades, a marked increase in this concern has resulted in the establishment of private pension plans in most large companies and many medium- and small-sized ones.
The substantial growth of these plans, both in numbers of employees covered and in amounts of retirement benefits, has increased the significance of pension costs in relation to the financial position, results of operations, and cash flows of many companies. In examining the costs of pension plans, a CPA encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans.
Answer the following questions in the Discussion Board:
- Define a private pension plan. How does a contributory pension plan differ from a noncontributory plan?
- Differentiate between “accounting for the employer” and “accounting for the pension fund.”
- Explain the terms “funded” and “pension liability” as they relate to:The pension fundThe employer
- Discuss the theoretical justification for accrual recognition of pension costs.
- Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs.
- Distinguish among the following as they relate to pension plans.Service costPrior service costsVested benefits
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022). Intermediate accounting (18th ed.). Wiley.
2. Amortization of Unrecognized
Gain
s/
Loss
es for Pensions
Vickie Plato, an accounting clerk in the personnel office of Streisand Corp., has begun to compute pension expenses for
2019
but is not sure whether or not she should include the amortization of unrecognized gains/losses. She is currently working with the following beginning-of-the-year present values for the projected benefit obligation and market-related values for the pension plan:
|
Projected Benefit Obligation |
Plan Assets Value |
||
|
2016 |
$2,200,000 |
$1,900,000 |
|
|
2017 |
2,400,000 |
2,500,000 |
|
|
2018 |
2,900,000 |
2,600,000 |
|
|
3,900,000 |
3,000,000 |
The average remaining service life per employee in 2016 and 2017 is 10 years and in 2018 and 2019 is 12 years. The net gain or loss that occurred during each year is as follows.
|
$280,000 |
|
85,000 |
|
12,000 |
|
25,000 |
Answer the following questions in the Discussion Board:
You are the manager in charge of accounting. Write a memo to Vickie Plato explaining why in some years she must amortize some of the net gains and losses and in other years she does not need to. To explain this situation fully, you must compute the amount of net gain or loss that is amortized and charged to pension expenses in each of the 4 years listed above. Include an appropriate amortization schedule, referring to it whenever necessary.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022). Intermediate accounting (18th ed.). Wiley.
3. Lease Accounting and Reporting
On January 1, 2017, Evans Company entered into a noncancelable lease for a machine to be used in its manufacturing operations. The lease transfers ownership of the machine to Evans by the end of the lease term. The term of the lease is 8 years. The minimum lease payment made by Evans on January 1, 2017, was one of eight equal annual payments. At the inception of the lease, the criteria established for classification as a capital lease by the lessee were met.
Answer the following questions in the Discussion Board:
- What is the theoretical basis for the accounting standard that requires certain long-term leases to be capitalized by the lessee? Do not discuss the specific criteria for classifying a specific lease as a capital lease.
- How should Evans account for this lease at its inception and determine the amount to be recorded?
- What expenses related to this lease will Evans incur during the first year of the lease, and how will they be determined?
- How should Evans report the lease transaction on its December 31, 2017, balance sheet?
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022). Intermediate accounting (18th ed.). Wiley.
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