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2009 F-6 Class Notes

2009 F-6 Class Notes - Becker CPA Review Financial 6 Class...

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Becker CPA Review – Financial 6 Class Notes 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. FINANCIAL 6 CLASS NOTES Financial 6 includes the following: I. EMPLOYER ACCOUNTING FOR PENSION PLANS A. Pension plans can be broken out into defined benefit plans and defined contribution plans. The CPA exam has emphasized defined benefit plans in which an employer provides an employee with defined retirement benefits in exchange for current or past services. As employees work, the pension benefits accumulate and actuarial computations are necessary to determine the present value of the future payments due. B. A defined benefit pension plan has two main components: a. Plan Assets - The cash and investments set aside by the employer to pay retirement benefits. Plan assets are measured at fair value. The change in plan assets during an accounting period is calculated as follows: Beginning fair value of plan assets + Contributions - Benefits paid + Actual return on plan assets Ending fair value of plan assets b. Pension Plan Liability - The actuarial present value of the pension benefits owed to employees for current and past service. There are two measures of pension plan liability: 1. The Accumulated Benefits Obligation ( ABO ) is the actuarial present value of benefits based on current and past compensation levels. 2. The Projected Benefit Obligation ( PBO ) is the actuarial present value of benefits based on expected future compensation levels. C. SFAS No. 158 requires that companies report the funded status of all pension plans on the balance sheet. A plan's funded status is calculated as follows: Fair value of plan assets - PBO Funded status A negative funded status indicates that the pension is underfunded . Underfunded pension plans are aggregated and reported as a current liability (to the extent that benefits payable in the next 12 months exceed the fair value of the plans' assets), a noncurrent liability, or both.
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