One of your friends just heard a lecture on accounting for defined-benefit pension plans. "I can't believe how complicated that is," she says. "And half of the information used is just a guess. I think we should go back to the cash basis of reporting for these plans. At least it was reliable."
Using your knowledge of how the five components of pension accounting are measured,
- Explain how pension expense used to be calculated and why the cash basis is no longer accepted by U.S. GAAP.
- Identify and describe the six pieces of information needed to calculate pension expense.
- Describe the calculation used to arrive at pension expense.
- Explain the areas of accounting for pensions that continue to be controversial and under debate. How do you think these areas may change in the future?
Justify your answers with examples and reasoning.