Pension Cost Components
Response to the following problem:
Carson Company sponsors a single-employer defined benefit pension plan. The plan provides that pension benefits are determined by age, years of service, and compensation. Among the components that should be included in the net pension cost recognized for a period are service cost, interest cost, and expected return on plan assets.
Required:
1. What two accounting issues result from the nature of the defined benefit pension plan? Why do these issues arise?
2. Explain how Carson should determine the service cost component of the net pension cost.
3. Explain how Carson should determine the interest cost component of the net pension cost.
4. Explain how Carson should determine the expected return on plan assets component of the net pension cost.