Question

3-Explain at least two differences between a defined benefit and a defined contribution pension plan? 4-A corporation declares a dividend of s50,000 on December 1 payable to owners of record on Dec. 15, and then payable in cash on Jan 2. What transaction, if any, is recorded on Dec. 1? Show any journal entries needed on Dec. 1. 5-What other journal entries are needed for the transaction above? Show the entries. 6-Why do companies issue bonds? What other alternatives does a company have instead of issuing bonds? 7-A company sells $1,000,000 in bonds at par. What is the accounting (journal entry) needed to show this transaction?

Answer 1

3.

Defined benefit pension plans provide a stream of definitely determinable retirement benefits. These plans are often deemed to be less risky to beneficiaries as they insist on greater certainty as to the amount and timing of future benefits.

Defined contribution pension plans establish the contribution but do not establish the amount of retirement benefits. Defined contribution plans provide for each participant an individual account. It also pays benefits based on these accounts. So,the amount of eventual retirement benefits is unknown.

4. The journal entry would be

Retained Earnings..... Dr 50,000

Dividend payable 50,000

(To record declaration of dividend)

5. The journal entry would be:

Dividend Payable .......Dr. 50,000

Cash 50,000

(To record payment of dividend)

6. When companies need to raise money to finance for capital expenditure or sometimes revenue expenditure, bonds are issued. A bond acts as an conduit between investor and corporation. There are however various alternatives to bond such as issuing warrants, issuing equity share capital , issuing preference shares or taking simply a long term loan from banks. Each alternatives has its own pros and cons.

7. The journal entry would be:

Cash......Dr. 1000,000

Bonds Payable 1000,000

(To record issuance of bonds at par)