Reporting Paper

Reporting Paper

ACC541

October 7, 2013

Reporting Paper

This memo is to inform management of the reporting requirements relating to the 100% acquisition of another company. The acquired company includes two segments and two different pension plans. It will provide information about the accounting for defined contributions, defined benefits, and other postretirement plans. In addition it will address what must happen for the two segments to be eliminated.

Defined Contributions

Accounting for defined contributions is fairly basic. “The risk for future benefits is borne by the employee, the employer’s only cash outflow is the annual contribution to the pension plan fund (Schroeder, Clark, & Cathey, 2011, pg. 457). Examples of defined contributions are Individual Retirement Accounts (IRAs), and 401(k) plans. “In such plans, the employee is responsible, to one degree or another, for selecting the types of investments toward which the funds in the retirement plans are allocated. This may range from choosing one of a small number of pre-determined mutual funds to selecting individual stocks or other securities’ (Wikipedia, 2013). The financial statements should reveal the existence of the plan, the employees groups covered, the core for determining contributions, and any important matters affecting comparability from period to period.

Defined Benefits

Accounting for defined benefit plans is much more complicated. “In these plans, the pension benefits to be received in the future are affected by uncertain variables such as turnover, mortality, length of service, compensation levels, and earnings on the pension fund assets” (Schroeder, Clark, & Cathey, 2011, pg. 457). The risk is taken by the employer as the company must make sure that they are contributing enough funds to the plan to meet the promised pension benefits. This will result in the expenses not equaling the cash contributed to the plan. FASB ASC 960 establishes accounting and...