Question

Exercise 17-25 Postretirement benefits; determine APBO, service cost, interest cost; prepare journal entry [LO17-10, 17-11]

The following data are available pertaining to Household Appliance Company's retiree health care plan for 2018:

Number of employees covered		2
Years employed as of January 1, 2018		2	[each]
Attribution period		25	years
Expected postretirement benefit obligation, Jan. 1	$	63,000
Expected postretirement benefit obligation, Dec. 31	$	66,000
Interest rate		5	%
Funding		none

Required:
1. What is the accumulated postretirement benefit obligation at the beginning of 2018?
2. What is interest cost to be included in 2018 postretirement benefit expense?
3. What is service cost to be included in 2018 postretirement benefit expense?
4. Prepare the journal entry to record the postretirement benefit expense for 2018.

Answer 1

Solution:
1.	Accumulated postretirement benefit obligation =$5,040
Working Notes:
	Accumulated postretirement benefit obligation = (Expected postretirement benefit obligation, Jan. 1) x (Years employed as of January 1, 2018 / Attribution period)
		=$63,000 x (2/25)
		=$5,040
2.	Interest cost =$252
Working Notes:
	Interest cost to be included in 2018 postretirement benefit expense
	Interest cost =Accumulated postretirement benefit obligation beginning 2018 x Interest rate
		=$5,040 x 5%
		=$252
3.	Service cost = $2,640
Working Notes:
	Service cost to be included in 2018 postretirement benefit expense
	Service cost = Expected postretirement benefit obligation, Dec. 31 x (1/Attribution period)
		=$66,000 x (1/25)
		=$2,640
4.
Event	General Journal	Debit	Credit
1	Postretirement benefit expense	2,892
	Postretirement benefit liability		2,892
Working Notes:
	Postretirement benefit expense = Interest cost + Service cost
		=$252 + $2,640
		=2,892
Please feel free to ask if anything about above solution in comment section of the question.