Question

The following data are available pertaining to Household Appliance Company's retiree health care plan for 2021:

Number of employees covered		2
Years employed as of January 1, 2021		3	[each]
Attribution period		20	years
Expected postretirement benefit obligation, Jan. 1	$	60,000
Expected postretirement benefit obligation, Dec. 31	$	63,000
Interest rate		5	%
Funding		none

Required:
1. What is the accumulated postretirement benefit obligation at the beginning of 2021?
2. What is interest cost to be included in 2021 postretirement benefit expense?
3. What is service cost to be included in 2021 postretirement benefit expense?
4. Prepare the journal entry to record the postretirement benefit expense for 2021.

Answer 1

SOLUTION

1.Accumulated postretirement obligation = expected postretirement benefit obligation, january 1 * (years employed as of january 1 2021 / attribution period)

= $60,000*3/20

= $9,000

accumulated postretirement benefit obligation at the beginning of 2021 = $9,000

2.interest cost to be included in 2021 postretirement benefit expense = accumulated postretirement benefit obligation*interest rate

= $9,000*5%

= $450

3.service cost to be included in 2021 postretirement benefit expense = EPBO attributed service 2021 to 2021 cost $63000*1/20

   = $3150   

4.journal entry to record the postretirement benefit expense for 2021

S.NO ACCOUNT TITLE DEBIT $ CREDIT$

1 Postretirement benefit expense ( $3150+$450) $3600

To postretirement benefit liability $3600