Question

Lorin Management Services has an unfunded postretirement benefit plan. On December 31, 2018, the following data were available concerning changes in the plan's accumulated postretirement benefit obligation with respect to one of Lorin's employees: APBO at the beginning of 2018 Interest cost: ($36,036 x 11%) Service cost: ($34,000 ~ 1/17) Portion of EPBO attributed to 2018 APBO at the end of 2018 $36,036 3,964 2,000 $42,000 Required: 1. Over how many years is the expected postretirement benefit obligation being expensed (attribution period)? 2. What is the expected postretirement benefit obligation at the end of 2018? 3. When was the employee hired by Lorin? 4. What is the expected postretirement benefit obligation at the beginning of 2018? 17 years $ 1. Number of years 2. Expected postretirement benefit obligation (ending) 3. The employee was hired by Lorin 4. Expected postretirement benefit obligation (beginning) years before 2018 | $

Answer 1

SOLUTION

1. Number of years = 17 years, the expected postretirement benefit obligation is being expensed over 17 years.

2. Expected postretirement benefit obligation = $34,000

3. Accumulated postretirement benefit obligation = Expected postretirement benefit obligation * Fraction earned

$42,000 = $34,000 * X/17

X = $42,000 / 2,000

X = 21 Years

4.Expected postretirement benefit obligation (beginning of the year) * Interest multiplier = Expected postretirement benefit obligation (end of the year)

X * 1.11 = 42,000

X = 42,000 / 1.11

X = 37,838