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Acc 541 Memorandum

In: Business and Management

Submitted By sosonja
Words 1147
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M E M O R A N D U M

To: Michael Jones, CEO, XYZ Company
From: Sonja Bauer, QRS Accounting
Date: September 3rd, 2012
Re: Acquisition of ABC Company: Pension Plan and Segment Reporting

The acquisition of ABC Company resulted in the acquisition of its two pension plans, to include a defined contribution plan, and a defined benefit plan. The transaction also resulted in XYZ Company gaining control of two segments that offer no real value to its current business, as they are redundant, and therefore will be eliminated. What follows is an overview of the reporting requirements for the pensions, and what must take place for the two segments to be disposed of.
Under the defined contribution plan, ABC Company contributed 6% of their employees’ salary, per pay period, to a pension fund. The eventual retirement benefit is determined by the rate of return on the invested pension funds (Schroeder, 2011). In other words, ABC Company makes no guarantee of a specified amount that would be paid to an employee upon retirement. ABC Company’s only expense for the defined contribution plan is the cash that they contributed to the pension plan fund. Accordingly, the amount of the promised annual contribution would equal the periodic pension expense (Schroeder, 2011). XYZ Company will be required to disclose the plan on financial statements, as well as describe the employee groups covered and the basis for determining contributions, as well as any significant changes from one period to another (Schroeder, 2011).
Under the defined benefit plan, ABC Company guaranteed an employee an amount of retirement income at age 65 equal to 2% of the average of the employee’s best six years’ income, multiplied by the number of years of service. As there is a defined amount that a retiree will receive, there is an increased risk that the company may not be able to pay in the event…...

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