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Flashcards in Pension Principles, Reporting Deck (17):

What are the two types of pension plans?

1.) Defined Contribution Plan - Amount of employer contribution is defined by contract
2.) Defined Benefit Plan - The benefits paid during retirement are based on a formula and therefore are defined


Define "projected benefit obligation (PBO)"

Obligation for defined benefit plans; present value of unpaid benefits as of the balance sheet date


Define "pension expense"

The cost to the firm of providing the pension benefits earned during the year


At what amount are plan assets reported?

Fair value


List the formula for the amount of return used in computing periodic pension expense

Expected return = rate of return X beginning plan assets

This amount reduces pension expense


What is the basis of accounting for defined benefit plans?

Accrual is the basis of accounting for these plans.


Define "interest cost" as it relates to pension plans, and show the computation

Growth in pension obligation for a period.

=discount rate x (PBO at beginning of the year)

It is a liability that is assumed by the firm and is part of annual pension expense


Define "service cost" as it relates to pension plans

Amount of pension expense reported if interest cost and expected return are equal. It is the present value of benefits earned for a period.


List the outside entities that provide services for a sponsoring firm's defined benefit pension plan

Actuary and Trustee


What is the pension liability balance for a defined contribution plan?

Amount of required contribution not paid


List the two terms for pension plans pertaining to whether employees provide funds for their plan

Plans can be contributory or noncontributory


Where should the funded status of a defined benefit pension plan for a company be reported?

Statement of financial position


How is Pension Liability Calculated?

Difference between ending PBO and plan assets at the balance sheet date. If PBO exceeds plan assets, then pension liability


What is the discount rate in Pension accounting?

The rate used for all actuarial present value pension calculations. The rate at which the pension obligation could be settled and is pegged at the market rate of interest


What is the Expected rate of Return in Pension accounting?

Rate used to compute expected rate of return on plan assets.


What two amounts must a firm compute each year for Pension Accounting?

1.) Annual pension expense - PV cost of benefits earned during the year - cont. operations
2.) Pension Fund Liability - negative = underfunded, positive =overfunded


What are the two sources of funding a PBO for Defined Benefit Fund?

1.) Employer Contribution
2.) Return on Fund Assets

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