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week 5 reporting paper FINAL - Reporting paper Jeena Cao...

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Reporting paper Jeena Cao ACC/541 Sonja Wilson November 22, 2010 MEMO To: CEO From: Controller Re: Acquired Segments Most employees dedicate a small portion of their paycheck to some sort of pension plan offers through their company to save up an income for after retirement. The two common types of pension plan are defined contribution plans and defined benefit plans. A defined contribution plan is a plan where the employer also adds a certain amount into the employees’ pension trust each paying period and the amount is calculated using a formula. The formula includes variables such as the employer’s profit, employee’s length of employment, their age, and their compensation level (Kieso & Weygandt). This pension trust goes to the employee in full once he reached retirement as well as the investment returns. Employers favor the defined contribution plan for a few reasons; the employers’ contribution amount is known and fixed, employees are the those responsible for the risk factors, and the employers usually receives tax deduction for the amount contributed. On top of that, the accounting for contribution plan is very straightforward for the employer. The recording happens as the fund is being contributed, and there is no need for recording when the company pays out the pension trust to a retired employee because the fund has already been accounted for.
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