In accounting for a defined-benefit pension plan

Question

Quizplus · Accepted Answer

The statement "An appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised" is the only correct statement. The employer's responsibility is not just limited to making a contribution each year, but also to ensure that there are enough funds to meet the promised benefits. The expense recognized each period is not equal to the cash contribution as it also includes interest expense, service cost, and other components. The liability is not solely determined based on known variables that reflect future salary levels promised to employees but also includes assumptions about future investment returns, mortality rates, and other factors.

In Accounting for a Defined-Benefit Pension Plan