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Chapter 20: Question 24Q (page 1161)

Determine the meaning of the following terms. (a) Contributory plan. (b) Vested benefits. (c) Retroactive benefits. (d) Years-of-service method.

Short Answer

Expert verified

The accrued benefitis the type of benefit an employeeearns by working in an organizationand taking adefined pension planto secure its lifeafter retirement.

Step by step solution

01

(a) Contributory plan:

A contributory plan is the type of pension plan where the employee of an organization contributes a part of a section of the total pension cost. It leads to an increase in the amount of pension benefits for an employee in the future.

02

(b) Vested benefits:

Vested benefits are those benefits an employee receives that depict the actuarial present value of the pension benefit an organization is obligated to pay in the future.

03

(c) Retroactive benefits:

Retroactive benefits are those initiated under the plan amendment of an organization procured using the pension benefit formula.

04

(d) Years-of-service method:

The years-of-service method is the type of pension plan method. The total pension benefit is calculated by combining the average service life of each employee in an organization up to its retirement.

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Most popular questions from this chapter

Englehart Co. provides the following information about its postretirement benefit plan for the year 2017. Service cost $ 90,000 Prior service cost amortization 3,000 Contribution to the plan 56,000 Actual and expected return on plan assets 62,000 Benefits paid 40,000 Plan assets at January 1, 2017 710,000 Accumulated postretirement benefit obligation at January 1, 2017 760,000 Accumulated OCI (PSC) at January 1, 2017 100,000 Dr. Discount rate 9% Instructions Compute the postretirement benefit expense for 2017.

What is service cost, and what is the basis of its measurement?

Latoya Company provides the following selected information related to its defined benefit pension plan for 2017. Pension asset/liability (January 1) \( 25,000 Cr. Accumulated benefit obligation (December 31) 400,000 Actual and expected return on plan assets 10,000 Contributions (funding) in 2017 150,000 Fair value of plan assets (December 31) 800,000 Settlement rate 10% Projected benefit obligation (January 1) 700,000 Service cost 80,000 Instructions (a) Compute pension expense and prepare the journal entry to record pension expense and the employer鈥檚 contribution to the pension plan in 2017. Preparation of a pension worksheet is not required. Benefits paid in 2017 were \)35,000. (b) Indicate the pension-related amounts that would be reported in the company鈥檚 income statement and balance sheet for 2017.

Differentiate between a defined contribution pension plan and a defined benefit pension plan. Explain how the employer鈥檚 obligation differs between the two types of plans.

Manno Corporation has the following information available concerning its postretirement benefit plan for 2017. Service cost $40,000 Interest cost 47,400 Actual and expected return on plan assets 26,900 Compute Manno鈥檚 2017 postretirement expense.
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