6.1 Oregon Co.\'s employees are eligible for retirement with benefits at the end

Question

6.1 Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement.

Ralph Young was hired at the beginning of 1977 by Oregon after turning age 22 and is expected to retire at the end of 2020 (age 60). The discount rate is 4%. The plan is unfunded.
The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839.
The PV of $1 where n = 2 and i = 4% is 0.92456.

With respect to Ralph, what is the service cost to be included in Oregon's 2018 postretirement benefit expense, rounded to the nearest dollar?

Multiple Choice

$3,544.

$20,000.

$5,272.

$6,365.

6.2 Two independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences:

The enacted tax rate is 40% for both situations.
Required:
For each situation determine the:

SITUATION 1 2 Taxable income $ 40,000 $ 80,000 Amounts at year-end: Future deductible amounts 5,000 10,000 Future taxable amounts 0 5,000 Balances at beginning of year, dr (cr): Deferred tax asset $ 1,000 $ 4,000 Deferred tax liability 0 1,000

Explanation / Answer

SOLUTION

6.1- Service cost to be included = $5,272

PV of an ordinary annuity of $1 where n = 15 and i = 4%

= $20,000 * 11.11839

= $222,368

Expected postretirement benefit obligation = Present value * PV factor

= $222,368 * 0.92456

= $205,593

Service cost = Expected postretirement benefit obligation * (1 year / Attribution period)

= $205,593 * 1 year / 39 years

= $5,272

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.