Question

Data pertaining to the postretirement health care benefit plan of Sterling Properties include the following for 2018:

	($ in 000s)
Service cost	$	146
Accumulated postretirement benefit obligation, January 1		1,200
Plan assets (fair value), January 1		80
Prior service cost–AOCI		none
Net gain–AOCI (2018 amortization, $1)		105
Retiree benefits paid (end of year)		93
Contribution to health care benefit fund (end of year)		225
Discount rate, 7%
Return on plan assets (actual and expected), 10%

Required:
1. Determine the postretirement benefit expense for 2018.
2. Prepare the appropriate journal entries to record the postretirement benefit expense, funding, and retiree benefits for 2018.

Answer 1

Answer
Part A)
The postretirement benefit expense is calculated as follows:
	,000
Service Cost	$      146
Interest Cost (1200*7%)	$        84
Return on Plan Assets (80*10%)	-$          8
Amortization of Prior Service Cost	$         -
Amortization of Net Gain	-$          1
Postretirement Benefit Expense	$      221

Part B)
The journal entries are as follows:
Account Titles	Debit (000)	Credit(000)
Postretirement Benefit Expense (from Part A)	$      221
Plan Assets (80*10%)	$          8
Net Gain-AOCI	$          1
APBO (146+84)		$           230
(To record postretirement benefit expense)
Plan Assets	$      225
Cash (Contributions to Fund)		$           225
(To record the funding)
APBO	$        93
Plan Assets (Retiree Benefits)		$             93
(To record the retiree benefits)