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Unformatted text preview: 17 Employee Compensation—Payroll, Pensions, and Other Compensation Issues Overview Employee compensation is an accounting issue that affects every company. The issues that affect every company are relatively straightforward and easy to apply. That being the case, they don’t make up the bulk of this chapter. Instead, most of this chapter deals with employer-provided pensions of the defined benefit variety. Due to the costs, and risks, to the employer, defined benefit pensions are not common in newer or smaller companies. However, they still exist for many large companies that have been in existence for long periods of time. The accounting for these plans is anything but straightforward and easy to apply. The disclosures related to these pensions are far more extensive than the numbers that show up on the face of the financial statements at the current time. In fact, the bulk of the calculations required are for the disclosures. The full amounts of the pension assets and pension liabilities are not shown on the balance sheet. As of the beginning of 2009, the difference between the total pension assets and liabilities need not be shown on the balance sheet, either. Rather, an account called “Prepaid/Accrued Pension Cost” is the only account dealing with pensions that usually appears on the balance sheet. It frequently doesn’t have a balance nearly as large as the true difference between the total pension assets and total pension liability. However, this may change in the near future. Occasionally, when a pension plan is underfunded, a minimum pension liability must be established which is reflected on the balance sheet. The pension liability isn’t fully accrued with just a minimum pension liability, however. The minimum pension liability is based on the accumulated benefit obligation (ABO), which is generally a much smaller obligation than the projected benefit obligation (PBO). Other benefits are provided to retirees besides pensions. The accounting for them is similar to pensions, but there are some differences. 17-2 Chapter 17 Learning Objectives Refer to the Review of Learning Objectives at the end of the chapter. It is crucial that this section of the chapter is second nature to you before you attempt the homework, a quiz, or exam. This important piece of the chapter serves as your CliffsNotes or “cheat sheet” to the basic concepts and principles that must be mastered. If after reading this section of the chapter you still don’t feel comfortable with all of the Learning Objectives covered, you will need to spend additional time and effort reviewing those concepts that you are struggling with. The following “Tips, Hints, and Things to Remember” are organized according to the Learning Objectives (LOs) in the chapter and should be gone over after reading each of the LOs in the textbook....
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This note was uploaded on 12/22/2010 for the course ACCOUNTING 564 taught by Professor Ahmadali. during the Fall '08 term at American Dubai.
- Fall '08