Pension and Future Vacation Costs
Response to the following problem:
Essex Company has a single-employer defined benefit pension plan, and a compensation plan for future vacations for its employees.
Required
1. Define the interest cost component of net pension cost for a period. Explain how Essex should determine the interest cost component of its net pension cost for a period.
2. Define prior service cost. Explain how Essex should account for prior service cost.
3. What conditions must be met for Essex to accrue compensation for future vacations? Explain the theoretical rationale for accruing compensation for future vacations.