Question

In: Accounting

On January 1, 2016, Flash and Dash Company adopted a healthcare plan for its retired employees....

On January 1, 2016, Flash and Dash Company adopted a healthcare plan for its retired employees. To determine eligibility for benefits, the company retroactively gives credit to the date of hire for each employee. The following information is available about the plan:

Service cost $29,200
Accumulated postretirement benefit obligation (1/1/16) 109,200
Expected return on plan assets 0
Amortization of Prior service cost 8,400
Payments to retired employees during 2016 4,010
Interest rate 8%
Average remaining service period of active plan participants (1/1/16) 13 years

Required:

1. Compute the OPRB expense for 2016 if the company uses the average remaining service life to amortize the prior service cost.
2. Prepare all the required journal entries for 2016 if the plan is not funded.

Solutions

Expert Solution

STEP 1 :

Interest cost = Accumulated post retirement benefit obligation * Interest rate

= $ 109200 * 8 %

= $8736

STEP 2 :

Post retirement benefit expense

Service cost

$ 29,200

Add : interest cost

$ 8,736

Amortization of prior service cost

$ 8,400

Amortization of net gain

0

Less : expected return on plan assets

0

OPRB EXPENSES

$ 46,336

STEP 3 : Flash and Dash Company recognizes the accumulated post retirement benefit obligation on January 1, 2016 as

Date

Particulars

Debit

    Credit

2016

Other comprehensive income: prior service cost

$109,200

Accrued post retirement benefit cost

$109,200

Flash and Dash Company records the expenses as :

Date

Particulars

Debit

    Credit

2016

Post retirement benefit expenses

$ 46,336

Accrued post retirement benefit cost

$ 46,336

Flash and dash company records the payment of retirement as :

Date

Particulars

Debit

    Credit

2016

Accrued Post retirement benefit cost

$ 4010

Cash

$ 4010

It reduced the prior service cost from accumulated other comprehensive income. So record the prior service cost and net income as :

Date

Particulars

Debit

    Credit

2016

Accrued post retirement benefit cost

$ 8400

Other comrehensive income: prior service cost

$ 8400

Accrued Post retirement benefit cost is calculated as:

  Accrued Post retirement benefit cost

Accumulated Post retirement benefit obligation balance on 1-1-2016

$ 109,200

Add : Expenses

$ 46,336

Less : Prior service cost

$ 8,400

Less : Payment of retirement for 2016

$ 4,010

Accumulated Post retirement benefit obligation balance on 31-12-2016

$ 143,126

At the end of the year ,post retirement benefit obligation is calculated as ;

Post retirement benefit obligation

Accumulated post retirement benefit obligation balance on 1-1-2016

$ 109,200

Add : Service cost

$ 29,200

Add : Interest cost

$ 8,736

Less : payment of retirement for 2016

$ 4,010

Accumulated post retirement benefit obligation balance on 31-12- 2016

$ 143,126


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