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		2	[each]
Attribution period		25	years
Expected postretirement benefit obligation, Jan. 1	$	63,000
Expected postretirement benefit obligation, Dec. 31	$	66,150
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

1)
Accumulated PBO at the beginning            = Expected PBO Jan.1 x Years Employed / Attribution Period            =   $ 63,000 x 2 /25	$ 5,040
2)
Interest cost              = Accumulated PBO x Interest rate              =   $ 5,040 x 5%	$ 252
3)
Service cost              = Expected PBO Dec. 31 x Total Years / Attribution Period               =   $ 66,150 x 1 / 25	$ 2,646

Date	General Journal	Debit	Credit
1	Postretirement benefit expense ( $ 252 + $ 2,646 )	$ 2,898
	Postretirement benefit liability		$ 2,898
	(To record the Postretirement benefit expense )