The EPBO for a particular employee on January 1, 2016, was $150,000. The APBO at

Question

The EPBO for a particular employee on January 1, 2016, was $150,000. The APBO at the beginning of the year was $30,000. The appropriate discount rate for this postretirement plan is 5%. The employee is expected to serve the company for a total of 25 years with 5 of those years already served as of January 1, 2016.

The service cost and interest cost for 2016 are respectively:

C. $6,000 and $1,500 A. $300 and $7,500 D. $36,000 and $7,500 B. $6,300 and $1,500 E. None of the other answer choices are correct

Explanation / Answer

Ans is B B. $6,300 and $1,500

Explanation: Service cost is determined by Increased value of EPBO by interest cost for 1 extra year of service.

EPBO beginning = $150000

EPBO ending = 150000 x 1.05 = $157500

Service cost = 157500 x 1/25 = $6,300

Interest cost = APBO x discount rate

= 30000 x 5%

= $1,500

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