Monat Company has grown rapidly since its founding in 2004. To instill loyalty in its employees, Monat is contemplating establishment of a defined benefit plan. Monat knows that lenders and potential investors will pay close attention to the impact of the pension plan on the company's financial statements, particularly any gains or losses that develop in the plan. Monat has asked you to conduct some research on the accounting for gains and losses in a defined benefit plan.

Instructions

If your school has a subscription to the FASB Codification, go to aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.

(a) Briefly describe how pension gains and losses are accounted for.

(b) Explain the rationale behind the accounting method described in part (a).

(c) What is the related pension asset or liability that will show up on the balance sheet? When will each of these situations occur?