Chapter 20
Accounting in Action: CM2
CM2 has not offered retirement benefits to its employees but is looking for
information on pension retirement plans. Naturally, when you show up for work,
Conner and Martin suggest that you gather information and fill them in on
possible beneflt plans and their accounting consequences.
lnstructions
(a) V Research the authoritative titerature (using the FASB
Codification) for information about two types of retirement pension plans
that might be adopted–{efined-contribution plans and defi ned-benefit
plans, Write a memo explaining these plans and describing their costs and
benefits.
(b) V After you present the memo and explain the concept of pension
retirement plans, Conner and Martin chime in and say they have read in
the news that many compantes are “singing the blues” because they have
severely underfunded pension plans and face huge shortfalls in covering
their looming pension obligations.
However, they are also quite confused because years ago, these
same companies were on top of the world when their pension plans were
overfunded. How, they wonder, can this happen in a relatively short period
of time? Explain to Conner and Martin how this can happen for definedbenefit
pension plans. In your discusston, address the following:
Continuing Case 6
(1) Five components of pension expense.
(2) The concept of “smoothing” in terms of gainsflosses (delayed
recognition).
Continuing Case 7
