Exercise 17-25 Postretirement benefits; determine APBO, service cost, interest c
ID: 2548986 • Letter: E
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:
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.
Explanation / Answer
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.
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