Question

Southeast Technology provides postretirement health care benefits to employees. On January 1, 2018, the following plan-related data were available:

	($ in 000s)
Prior service cost—originated in 2013	$	69
Accumulated postretirement benefit obligation		730
Fair value of plan assets		none
Average remaining service period to retirement	20 years (same in previous 10 yrs.)
Average remaining service period to full eligibility	15 years (same in previous 10 yrs.)

On January 1, 2018, Southeast amends the plan in response to spiraling health care costs. The amendment establishes an annual maximum of $5,000 for medical benefits that the plan will provide. The actuary determines that the effect of this amendment is to decrease the APBO by $120,000. Management amortizes prior service cost on a straight-line basis. The interest rate is 9%. The service cost for 2018 is $134,000.

Required:
1. Complete the below table to calculate the prior service cost amortization for 2018.
2. Complete the below table to calculate the postretirement benefit expense for 2018.

Answer 1

1) Prior Service Cost Amortization :-

Particulars	Amount($)
Prior Service Cost	69000
Reduction for amendment	(120000)
Prior Service Cost for Amortization (a)	(51000)
No. of Years (b)	15 years
Prior Service Cost Amortized (a/b)	3400 per year

2) Post-retirement benefit expense :-

Particulars	Amount($)
Service Cost	134000
Interest Cost ($730000-$120000)*9%	54900
Return Plan assets	0
Amortization of Prior Service Cost	(3400)
Post-retirement Benefit Expenses	185500