Abstract
This instructional tool draws a linkage between the journal entries required to record the activity of a defined benefit pension plan and the disclosures required under authoritative guidance. The quarterly and year-end adjusting entries are presented and linked to the financial statements and supplemental financial disclosures. These entries directly tie to amounts reflected in those disclosures to provide a more comprehensive analysis of the reporting process. The resulting analysis is beneficial for the understanding of pension accounting and the reporting of accumulated other comprehensive income.
Highlights
A ccounting for defined benefit pension plans incorporates a number of complex recognition and disclosure issues
Changes in the reporting requirements for pension plans and accumulated other comprehensive income (AOCI) add to the gap between the material presented in traditional textbooks and real world accounting situations
Accounting Standard Update 2013-02 (Accounting Standards Codification section 220) and 2017-07 (Accounting Standards Codification section 715) changed reporting requirements related to disclosures for net periodic pension cost and reclassification adjustments in other comprehensive income (OCI)
Summary
A ccounting for defined benefit pension plans incorporates a number of complex recognition and disclosure issues. ASC 715 (Compensation-Retirement Benefits) addresses the accounting requirements surrounding a defined benefit pension plan This includes the measurement of net periodic pension cost and presentation in the Income Statement, Statement of Comprehensive Income, Statement of Shareholder’s Equity, Statement of Financial Position, and supplemental footnote disclosures. The disclosures required by ASC 715 include information on the benefit obligation, plan assets, and net periodic pension cost These disclosures are normally part of the pension footnote to the financial statements, and may address dollar amounts that are not reflected on the books of the employer. The related disclosure for the Statement of Comprehensive Income would present the changes in AOCI balances and the reclassification of any AOCI amounts This disclosure would meet the requirements of ASC 715 including the amounts in AOCI that have not yet been recognized as components of net periodic benefit cost.
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