Spiceland4e_ch17FINAL_01242007 - 17 CHAPTER Pensions and...

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17 CHAPTER Pensions and Other Postretirement Benefits LEARNING OBJECTIVES OVERVIEW Employee compensation comes in many forms. Salaries and wages, of course, provide direct and current payment for services provided. However, it’s common- place for compensation also to include benefits payable after retirement. We discuss pension benefits and other postretirement benefits in this chapter. Accounting for pension benefits recognizes that they represent deferred com- pensation for current service. Accordingly, the cost of these benefits is recog- nized on an accrual basis during the years that employees earn the benefits. After studying this chapter, you should be able to: LO1 Explain the fundamental differences between a defined contribution pension plan and a defined benefit pension plan. LO2 Distinguish among the vested benefit obligation, the accumulated benefit obligation, and the projected benefit obligation. LO3 Describe the five events that might change the balance of the PBO. LO4 Explain how plan assets accumulate to provide retiree benefits and understand the role of the trustee in administering the fund. LO5 Describe the funded status of pension plans and how that amount is reported. LO6 Describe how pension expense is a composite of periodic changes that occur in both the pension obligation and the plan assets. LO7 Record for pension plans the periodic expense and funding as well as new gains and losses and new prior service cost as they occur. LO8 Understand the interrelationships among the elements that constitute a defined benefit pension plan. LO9 Describe the nature of postretirement benefit plans other than pensions and identify the similarities and differences in accounting for those plans and pensions. LO10 Explain how the obligation for postretirement benefits is measured and how the obligation changes. LO11 Determine the components of postretirement benefit expense.
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827 F INANCIAL R EPORTING C ASE United Dynamics You read yesterday that many companies in the United States have pension plans that are severely underfunded. This caught your attention in part be- cause you have your office interview tomorrow with United Dynamics. You hadn’t really thought that much about the pension plan of your potential fu- ture employer, in part because your current employer has a defined contribution 401K plan, for which funding is not a concern. However, United Dynamics is an older firm with a defined benefit plan, for which funding is the employer’s responsibility. To prepare for your interview, you obtained a copy of United Dynamics’ financial statements. Unfortunately, the financial statements themselves are of little help. You are unable to find any pension liability on the balance sheet, but the statement does report a rela- tively small “pension asset.” The income statement reports pension expense for each of the years reported. For help, you search the disclosure notes. In part, the pension disclosure note reads as follows: Note 7: Pension Plan United Dynamics has a defined benefit pension plan covering substantially all of its employees. Plan benefits
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This note was uploaded on 12/06/2009 for the course FIN fin213 taught by Professor Keith during the Spring '09 term at Sabancı University.

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Spiceland4e_ch17FINAL_01242007 - 17 CHAPTER Pensions and...

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