San Francisco Company sponsors a single-employer IRS qualified defined benefit pension plan. The plan provides that pension benefits are determined by age, years of service, and compensation. Among the components that should be included in the net pension cost recognized for a period are service cost, interest cost, and expected return on plan assets.

Required:

What is a qualified pension plan? How does it differ from a non-qualified plan?

What types of assumptions must a company make when accounting for a defined benefit pension plan? Are assumptions also needed when accounting for a defined contributions plan? Explain.

Explain how San Fran should determine the service cost component of the net pension cost.

Explain how San Fran should determine the interest cost component of the net pension cost.

Explain how San Fran should determine the unexpected return on plan assets component of the net pension cost.

Explain the corridor method of accounting for gains and losses.