There are three major approaches to measure and allocate pension amounts to given fiscal years. These approaches are used by actuaries to determine funding amounts and by accountants to determine amounts to be recorded in financial statements. Holo Co. has a defined benefit pension plan that has been in existence for five years since 20X2. The company is reviewing its funding approach and has three different funding amounts for 20X7, each based on a different actuarial cost method:
• $5,000
• $2,500
• $3,900

Required:
1. Identify three actuarial cost methods, and specify the projections that differentiate these three methods.
2. Suggest which funding amount, above, is associated with which actuarial cost method. Explain.
3. Which actuarial cost method is required for external reporting? What will be the outcome if this method is not used for funding?
4. In each of the following circumstances, identify the funding method that Holo would likely find most appealing:
a. Holo is experiencing a cash shortage and therefore is trying to conserve current cash balances.
b. Holo would prefer to have cash payments stable from year to year.
c. Holo would prefer to use a funding pattern that could also be used to measure the pension expense.