Question 1

The board of directors of the Vermont Company is going to adopt a defined benefit pension plan for the company's employees. The board is considering granting pension credit for up to ten 10) years of service rendered prior to the date that the plan is adopted. The board desires to grant the retroactive credit in order to provide equity to employees for their previous years of service. The board has hired an actuary to determine the cost of granting the retroactive credit. The actuary has calculated the cost of the retroactive benefits to be approximately one million dollars. The board has asked the company's controller to explain how the cost of the prior service credit would be accounted for in the financial statements.
Required:
a. According to current GAAP, the cost of any prior service credit granted to employees is recognized as a liability and reduces other comprehensive income, and it then amortized as a component of pension expense over the current and future periods. The liability is reduced and other comprehensive income is
a. Describe the GAAP that would be required by Vermont Company if prior service credit is granted to its employees.
b. Many people have argued that the method adopted by the FASB to account for prior service costs has several conceptual flaws. Briefly discuss the flaws of the approach adopted by the FASB for prior service costs.
c. The textbook discusses three other approaches that might have been used to account for prior service costs. Describe these three alternative approaches.

Accepted Answer

The answer of The board of directors of the Vermont...

Question 2

According to GAAP pension expense for a defined benefit pension plan consists of five components.
Required:
List and briefly describe each of the five components of net periodic pension cost that a company must recognize.

Accepted Answer

The answer of According to GAAP pension expense for a...

Question 3

The IASB's 2011 amendment to IAS 19 removed the smoothing of devices in pension accounting, which means that companies will have to recognize all changes in their projected benefit obligation and plan assets in the current period. These changes will be recorded in pension expense or other comprehensive income. With this change pension expense will have two components. Indicate that those two components are and provide a brief explanation of each.

Accepted Answer

The answer of The IASB's 2011 amendment to IAS 19...

Question 4

What five alternatives were examined by regulators to determine which best met the recognition-measurement criteria of a liability?

Accepted Answer

The answer of What five alternatives were examined by regulators...

Question 5

What five components comprise pension expense?

Accepted Answer

The answer of What five components comprise pension expense?...

Question 6

What estimates are necessary to account for a defined benefit pension plan?

Accepted Answer

The answer of What estimates are necessary to account for...

Question 7

What are the three major differences between the accounting for pensions and the accounting for other
Postretirement Benefits OPRB's)?

Accepted Answer

The answer of What are the three major differences between...

Question 8

One type of post-retirement benefit other than pensions is healthcare benefits.
Required:
Discuss the major differences between postretirement healthcare benefits and pensions.

Accepted Answer

The answer of One type of post-retirement benefit other than...

Question 9

What three methods are available to provide guidance for companies to recognize gains or losses in pension expense?

Accepted Answer

The answer of What three methods are available to provide...

Question 10

Current GAAP requires that a company with a defined benefit pension plan disclose a reconciliation of the beginning and ending balances of the projected benefit obligation.
Required:
State the items that must be included in this disclosure.

Accepted Answer

The answer of Current GAAP requires that a company with...

Question 11

What disclosures are required by GAAP about a company's defined benefit pension plan?

Accepted Answer

The answer of What disclosures are required by GAAP about...

Question 12

In addition to providing pensions to their employees, many companies also offer other postemployment benefits.
These are benefits going to former employees after employment but before retirement.
Required:
Describe how the cost of these benefits is to be accounted for under current GAAP.

Accepted Answer

The answer of In addition to providing pensions to their...

Question 13

What four alternative methods for accounting for prior service cost were considered by accounting regulators?

Accepted Answer

The answer of What four alternative methods for accounting for...

Question 14

Define the following:
expected postretirement benefit obligation EPBO)
accumulated postretirement benefit obligation APBO)

Accepted Answer

The answer of Define the following:
expected postretirement benefit obligation EPBO)
accumulated...

Quiz 19: Accounting for Post-Retirement Benefits

According to GAAP pension expense for a defined benefit pension plan consists of five components. Required: List and briefly describe each of the five components of net periodic pension cost that a company must recognize.

What five alternatives were examined by regulators to determine which best met the recognition-measurement criteria of a liability?

What five components comprise pension expense?

What estimates are necessary to account for a defined benefit pension plan?

What are the three major differences between the accounting for pensions and the accounting for other Postretirement Benefits OPRB's)?

One type of post-retirement benefit other than pensions is healthcare benefits. Required: Discuss the major differences between postretirement healthcare benefits and pensions.

What three methods are available to provide guidance for companies to recognize gains or losses in pension expense?

Current GAAP requires that a company with a defined benefit pension plan disclose a reconciliation of the beginning and ending balances of the projected benefit obligation. Required: State the items that must be included in this disclosure.

What disclosures are required by GAAP about a company's defined benefit pension plan?

In addition to providing pensions to their employees, many companies also offer other postemployment benefits. These are benefits going to former employees after employment but before retirement. Required: Describe how the cost of these benefits is to be accounted for under current GAAP.

What four alternative methods for accounting for prior service cost were considered by accounting regulators?

Define the following: expected postretirement benefit obligation EPBO) accumulated postretirement benefit obligation APBO)